Ethereum’s Merge Staking Guidelines Can Trigger Tax Confusion in the UK

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  • The Ethereum Merge will most likely cause widespread tax confusion in the UK.
  • UK Government issued special tax guidelines on staking that confused investors.
  • Ethereum’s proof-of-stake model encourages passive returns from ETH in the UK.

While the United Kingdom tries to establish itself as a crypto hub, the country’s tax guidelines around staking may cause mass confusion across the UK.

Recently, the world’s second-largest cryptocurrency went through a recent upgrade called the Merge, which has enabled Ether holders to lock up or stake their coins on the Ethereum blockchain and earn up to 2.5% returns by validating transactions through Ethereum’s proof-of-stake model.

Staking, previously reserved for a weather class of crypto investors, is now open to the regular trader through this upgrade. However, the regulations for staking in regard to tax payment are different in the UK compared to other countries.

Guidelines issued in February place added responsibility on the crypto investors to gather what they have to pay in taxes creating further complications in the already complex tax paying process in the nation that doesn’t require employed British people to file annual returns.

Hence, the authorities will face an additional administrative burden with staking in place.

According to EY’s tax partner David Wren,

Tax officials are going to give themselves a quite a big headache if they suddenly require a lot of people to file tax returns just for their crypto.

Staking is especially lucrative due to Ethereum’s proof-of-stake model, inspiring more investors to earn passive income by locking their ETH tokens in special staking wallets. In fact, Staking Rewards reported that almost 12% of circulating Ether scoring up to be approximately $25.2 billion are already locked up in staking wallets since Monday.