Have you heard of Weird Whales collection? It was designed and created by a young coder whose name is Benjamin Ahmed. His collection of this heavily pixelated image of whales has 3,350 images and was

launched as NFTs in June 2021. Within 90 minutes, his collection was sold out and was now reported to have its value of £750,000 or equivalent to almost one million dollars.

Though he’s only 12, and that his wealth is in the form of cryptoassets, he has already a real amount of tax liability due to his virtual fortune.

What is an NFT?

In general, NFTs include any form of artwork in digital form such as photos, videos, and audio and even tweets count. They are bought and sold online, and are also considered as generally unique with unique identifying codes, meaning each has a its digital signature that makes it impossible to be exchanged for or equal to another.

They have been around since 2014, but only gained its popularity now. It was reported that a whopping $174 million has been spent on NFTs since 2017.

Tax position

For an individual that owns and sells NFTs, it is necessary to consider the badges of trade, whether it is for trading (subject to income tax) or investment (subject to CGT).

Recently, a number of artists and creators are increasingly using NFTs to sell their digital versions of their artworks. It is not only the initial sale that can create revenue, the NFT originator still can receive a percentage on future sales and will still be considered as taxable.

Whereas the individual is not creating NFTs, then select purchases and sales of individual NFTs is more likely be considered as an investment subject to CGT.

In recent years, HMRC have been developing their guidance on cryptoassets, it doesn’t yet cover the tax position for the creation and sale of NFTs.