US Tax Return Preparation for Expats: UK Crypto ETNs

A crypto ETN bought on a UK exchange is a listed debt security that tracks a coin, not the coin itself. For a US citizen in the UK, 2025 is the first US return and 2025-26 the first UK return that can include one, and US tax return preparation for expats must classify the note before reporting it.

That short answer hides a good deal of work. The UK side is reasonably well mapped, although less simply than most investor guides suggest. The US side is not mapped at all: there is no IRS guidance specific to crypto exchange traded notes, and the ISA wrapper that makes the holding attractive in the UK is ignored entirely by the US. At Jungle Tax we prepare both returns for Americans in the UK, and this guide sets out how the holding is reported on each, where the two systems disagree, and what records make the difference between a clean filing and an expensive reconstruction.

What changed on 8 October 2025, and why does it create a new reporting year?

The FCA banned the sale, marketing and distribution of crypto derivatives and crypto exchange traded notes to retail consumers in January 2021. On 8 October 2025 it opened retail access to crypto ETNs, subject to conditions:

• the note must be traded on an FCA-approved, UK-based recognised investment exchange;
• the financial promotion rules and the Consumer Duty apply to firms offering it;
• there is no statutory compensation scheme cover for the product; and
• the retail ban on cryptoasset derivatives remains in place.

Before that date a UK-resident retail investor, American or otherwise, could not buy one through a UK platform. That is why the timing matters for filing purposes. A purchase between 8 October and 31 December 2025 falls in the 2025 US tax year, and any purchase between 8 October 2025 and 5 April 2026 falls in the 2025-26 UK tax year. These are the first returns on which the instrument can appear for a UK retail holder, and preparers on both sides are meeting it for the first time.

What is a crypto ETN, in tax terms?

The label matters less than the legal form. A crypto ETN (often written cETN) is a debt security issued by a company and admitted to trading on an exchange. Its redemption value is calculated by reference to the price of a cryptoasset, less fees. The holder has a contractual claim against the issuer. The holder does not own the coin, hold a private key, or have a wallet.

Three consequences follow, and each one runs through the rest of this guide:

• It is not a cryptoasset holding. HMRC's guidance on exchange tokens and the US digital asset rules both address the coin. Neither is the starting point for a note that merely tracks one.
• It is not a fund. A note is not a share or unit in a collective investment vehicle, so the analysis familiar from UK funds does not carry across automatically, in either country.
• It is held in an account. The note sits in a brokerage or ISA account at a UK institution, which is what drives the US information reporting.

How is a crypto ETN reported in the UK?

Inside an ISA

HMRC's policy paper on the tax treatment of cryptoasset exchange traded notes, published on 8 October 2025, sets out the position in two stages:

• From 8 October 2025: crypto ETNs were initially eligible for inclusion in stocks and shares ISAs.
• From 6 April 2026: they are reclassified as qualifying investments for the Innovative Finance ISA. An ISA manager needs HMRC approval to offer that type of ISA.
• Existing holdings: notes included in a stocks and shares ISA before 6 April 2026 are treated as qualifying investments from that date, so they may stay where they are.

The paper adds that the government will keep the position under review. For UK purposes, income and gains inside the ISA are exempt and nothing is entered on the Self Assessment return. The practical UK issue for 2026-27 onwards is not tax but availability: an investor wanting to add to a position within an ISA needs a manager that offers the Innovative Finance ISA and the note together.

Outside an ISA: read the note before assuming capital gains treatment

Most consumer guides say simply that profits on a crypto ETN are subject to capital gains tax. That is the usual outcome, but it is a conclusion and not a rule, and the HMRC policy paper itself does not address holdings outside tax-advantaged accounts. The answer comes from the general rules for discounted securities.

A security that can be redeemed for more than its issue price is, broadly, capable of being a deeply discounted security, and a profit on a deeply discounted security is charged to income tax, not capital gains tax. HMRC's Savings and Investment Manual explains the exception at SAIM3050 on excluded indexed securities: these fall outside the deeply discounted security rules and are taxed under the capital gains rules instead. A security qualifies where the amount payable on redemption is found by applying the percentage change in the value of chargeable assets, or an index of them, to the amount for which it was issued. The guidance carries two cautions that matter for listed notes:

• Gearing. The condition is not met if the return is geared, for example a note paying a multiple of the movement in the reference asset. A leveraged or inverse product needs separate analysis.
• Capital protection. A guaranteed minimum return of more than 10% of the issue price takes the note outside the exception.

A plain, ungeared, one-for-one tracker with no capital protection is the type of note that should meet the test, in which case the gain is a chargeable gain. It is then computed in the ordinary way for securities, with the same-day, 30-day and pooling rules for identifying which notes were sold, the £3,000 annual exempt amount, and rates of 18% and 24% depending on the level of the individual's income. A holder who sold in 2025-26 reports the disposal on the Self Assessment return due by 31 January 2027. Where the note fails the test, the profit belongs on the income pages at income tax rates, and a loss does not behave as a capital loss. We do not assume the answer; we check the terms.

Americans who claim the remittance basis for earlier years, or who are within the four-year foreign income and gains regime as new arrivals, should note that a note listed in the UK and issued by an overseas company raises a further question about the source of the gain. That is a point to settle with whoever prepares the UK return, using the facts of the particular note.

How does the US treat a crypto ETN held by a UK-resident American?

The ISA wrapper is ignored

The US taxes its citizens on worldwide income wherever they live, and nothing in US domestic law or the US-UK income tax treaty gives effect to the ISA exemption. Whatever the note produces under US rules is reportable on Form 1040 for the calendar year in which it arises, in US dollars, whether or not the note is in an ISA. This creates the central cross-border mismatch:

• In an ISA, the UK charges nothing, so there is no UK tax to claim as a foreign tax credit, and the US tax on any gain is an outright cost.
• Outside an ISA, UK capital gains tax is generally creditable against the US tax on the same gain, but the UK tax year and the US calendar year do not align, so the credit and the gain can fall in different US years unless the timing is managed on the return.
• In either case, the 3.8% net investment income tax can apply to higher earners, and foreign tax credits do not generally reduce it.

The note has to be classified first, and the classification is unsettled

There is no IRS guidance specific to crypto exchange traded notes. The IRS has published guidance on digital assets held directly, and separately has acknowledged for many years that the treatment of exchange traded notes and prepaid forward contracts generally is an open question on which it has requested comments. Nothing brings the two together. The return therefore has to take a reasoned position based on the note's terms. The competing treatments are these.

• Prepaid forward contract (open transaction). The holder is treated as having paid in advance for a future delivery measured by the reference asset. Nothing is taxed until sale or redemption, and the gain or loss is then capital, long-term if held for more than one year, reported on Form 8949 and Schedule D. Many issuers of US-listed notes linked to other assets describe their notes this way, while stating that the IRS could disagree.
• Debt instrument. If the note is respected as debt for US purposes, the contingent payment debt rules could require the holder to accrue interest income each year on a projected yield, even though nothing is paid, with gain on sale treated as ordinary income. For a note denominated in sterling, the foreign currency rules add a further layer.
• Equity in the issuer. Where the issuer is a thinly capitalised special purpose company whose only business is holding the reference asset, the note may in substance be an ownership interest in a foreign corporation. A foreign corporation holding only passive assets would be a passive foreign investment company, bringing Form 8621 and either the punitive default regime or an election, if one is available on the facts.

The differences are not academic. They change the character of the income, the year it is taxed, the rate, the forms attached, and whether UK tax paid on a later sale can be matched against it. They can also differ between two notes tracking the same coin, because the answer turns on the issuer's structure, the collateral arrangements, the holder's redemption rights and the wording of the prospectus. Sound preparation means obtaining the offering documents, checking whether the issuer has published any US tax disclosure, recording the position taken and the reasons, applying it consistently from year to year, and considering whether the return should disclose it.

Dollars, dates and basis

Whichever classification applies, the US computation is made in dollars. Cost is translated at the exchange rate on the purchase date and proceeds at the rate on the sale date, so a sterling gain and a dollar gain on the same trade will differ, sometimes in direction as well as size. The UK pooling rules have no US counterpart; the US identifies lots by default on a first-in, first-out basis unless specific lots are adequately identified. A UK tax pack therefore cannot be copied onto a US return. It has to be rebuilt from the contract notes.

US vs UK at a glance

Question	UK (HMRC)	US (IRS)
First return affected	2025-26 Self Assessment, due 31 January 2027	2025 Form 1040, due 15 April 2026 (automatic extension to 15 June for those abroad; 15 October on request)
What the holder owns	A listed debt security	Unsettled: forward contract, debt, or equity in the issuer
Inside an ISA	Exempt; not reported. Innovative Finance ISA from 6 April 2026, existing holdings may stay	Wrapper ignored; fully reportable
Gain outside an ISA	Capital gains tax if an excluded indexed security; otherwise income tax as a deeply discounted security	Capital or ordinary depending on classification
Annual taxation without a sale	None for a non-income-paying note	Possible under the debt or equity analyses
Matching of disposals	Same-day, 30-day, then pool	First-in, first-out unless lots are specifically identified
Currency	Sterling	US dollars at transaction-date rates
Information reporting	None beyond the return	FBAR and Form 8938 by account; Form 8621 if the equity analysis applies

FBAR and Form 8938: by account, not by coin

Much of the confusion here comes from guidance written for coins held directly on an overseas crypto platform. That is a different question. A crypto ETN is a security held in a securities account, and the account is what gets reported.

• FBAR. A UK brokerage account or ISA is a foreign financial account. If the combined maximum value of all the holder's foreign financial accounts exceeded $10,000 at any time in the calendar year, every account is listed with its maximum value for the year, and that value includes the ETN. The FBAR is due on 15 April with an automatic extension to 15 October.
• Form 8938. An account maintained at a non-US financial institution is a specified foreign financial asset, reported at its maximum value, with the assets inside it not listed separately. For taxpayers living abroad, Form 8938 is required where total specified foreign financial assets exceed $200,000 on the last day of the year or $300,000 at any time for a single filer, and $400,000 or $600,000 on a joint return.
• Form 8621. If the return takes the position that the note is an interest in a passive foreign investment company, a separate form is filed for that holding regardless of the account it sits in.

Two points are commonly missed. First, an ISA is reported on both forms even though it produces no UK tax document, which is why ISAs are so often omitted. Second, a new ETN purchase can push an account, or the aggregate, over a threshold for the first time. Our FBAR penalty calculator shows the exposure where an account has been left off.

Do gold and commodity ETCs raise the same question?

Yes, and they have been in UK portfolios for far longer. An exchange traded commodity is typically also a debt security, issued by a special purpose company and secured on metal or on a contract tracking a commodity price. The holder owns a note, not the bullion.

On the UK side the same excluded indexed security test applies, and an ungeared tracker of a chargeable asset would ordinarily produce a capital gain. Leveraged and inverse commodity products need the same care as their crypto equivalents. On the US side the same classification exercise is required, with one extra possibility. If the correct analysis is that the holder is treated as owning the underlying metal, long-term gain could fall within the collectibles category, taxed at a maximum rate of 28% instead of the usual long-term capital gains rates. If the note is instead a forward contract, debt, or equity in the issuer, the results follow the same branches described above. Many Americans in the UK have held gold ETCs in an ISA for years without the question ever being asked on the US return. The arrival of crypto ETNs is a sensible prompt to review both.

What records should you gather before the return is prepared?

• The prospectus or final terms for each note, and any US tax disclosure the issuer has published.
• Contract notes for every purchase and sale, showing trade date, quantity, price and charges.
• Year-end and highest-value statements for each account, on both a calendar-year basis for the US and a 5 April basis for the UK.
• Confirmation of whether each holding is inside or outside an ISA, and the date it entered the ISA.
• Prior-year US returns, FBARs and Forms 8938, so the new position is consistent with what has already been filed.

What if a crypto ETN, or the account holding it, was left off a return?

For most holders the only affected US year so far is 2025, and the solution is straightforward: an original return on extension is still in time until 15 October 2026, and a return already filed can be amended. A late FBAR can be filed with a statement explaining the delay.

The more serious cases are those where the ETN is simply the latest holding in an ISA or brokerage account that has never been reported to the US at all. Where the failure was non-wilful, the IRS Streamlined Filing Compliance Procedures allow the most recent three years of returns and six years of FBARs to be filed together with a certification of non-wilful conduct. Taxpayers who meet the non-residency requirement use the Streamlined Foreign Offshore Procedures, under which tax and interest are paid but no miscellaneous offshore penalty is charged. Our IRS streamlined filing team prepares these submissions, and our UK tax return service deals with any corresponding UK disclosure in parallel so that both sets of figures agree.

How Jungle Tax prepares returns that include listed notes

We are a tax preparation firm. We do not recommend investments or tell clients whether to hold a crypto ETN. What we do is make sure that a holding already in the portfolio is reported correctly, once, on both sides of the Atlantic. In practice that means reading the terms of each note, applying the HMRC excluded indexed security test for the UK return, documenting a supportable US classification and applying it consistently, rebuilding the dollar computation from the underlying trades, aligning foreign tax credits across the two tax years, and completing the FBAR, Form 8938 and any Form 8621 from the same account data. Our US-UK tax accountants prepare both returns together, which is the only reliable way to keep them consistent.

If your 2025 US return or 2025-26 UK return includes a crypto ETN, a gold or commodity ETC, or an ISA that has not previously been reported to the IRS, we would be glad to review the position before anything is filed. To arrange a confidential consultation, contact our cross-border team.