A new-build home in Essex has become the first UK property to officially be purchased using controversial cryptocurrency Bitcoin.
The £350,000 detached home was purchased last week – and for the first time, the Land Registry has agreed to register the sale in Bitcoin, a new type of payment that has surged in value in recent weeks.
Could this be start of a trend towards property investors using Bitcoin? Which? explores how the transaction worked and the potential dangers – including concerns about security and volatility.
First homes sold using Bitcoin
Last week, a developer announced it had completed on the first two UK homes to be bought using the cryptocurrency Bitcoin.
The first home, an off-plan new-build property in Colchester, was bought by a ‘Bitcoin miner’ who now intends to let the property out in the cryptocurrency.
This transaction marks the first time the Land Registry has agreed to register a sale using bitcoin, though the buyer is yet to decide whether to take up this option due to the uncertainty around how capital gains tax would be calculated.
Previously, the Land Registry had insisted sales could only be registered in Sterling due to concerns over money laundering.
Is buying by Bitcoin a growing trend?
The developer listing these two properties, Go Homes, claims that property sales using Bitcoin will become common in the next five years, and will accept the currency on any of its upcoming 250 homes.
At this stage, however, there is no sign that the major players are set to join the craze, though there has been a couple of headline grabbing listings.
Earlier this year a mansion in Notting Hill, London was put on the market as a Bitcoin-only listing for the equivalent of £17m.
Elsewhere, another developer, The Collective, has announced it will allow tenants to pay their rent using the cryptocurrency.
What is Bitcoin?
Launched in 2009, Bitcoin is a digital currency that isn’t backed by a government.
Rather than using a bank to transfer assets from one account to another, Bitcoin sales are processed by a technology called Blockchain. The Bitcoin value is transferred directly from payer to payee, and recorded on an electronic ledger system.
It is an extremely volatile currency – though its value has soared over 2017, the value of a bitcoin can fall quickly too. A £10,000 bitcoin investment made on 20 December would have been worth around £7,000 two days later.
Why make a property purchase with Bitcoin?
Bitcoin transactions don’t involve a financial institution, so money can be transferred instantaneously. This means exchange and completion can happen at the same time, speeding up the process for both buyer and developer.
For those who made an early killing on Bitcoin, investing in a tangible asset like property may allow them to convert their digital fortune into real returns.
The seller, meanwhile, has the opportunity to receive a large number of Bitcoins in a single transaction – and given only 21 million Bitcoins will be created, this could be an appealing prospect, though there is no guarantee the currency will maintain its value.
But there are also complexities around how taxation works on a bitcoin property purchase. As with a traditional house purchase, you’ll have to pay stamp duty. This will be calculated on the Sterling value of the bitcoin at the time of the transaction.
Sellers may also face additional capital gains tax when they cash in their cryptocurrency.
It may also be difficult to find conveyancers or solicitors with expertise with these exotic purchases.
Risks of paying via Bitcoin
While Bitcoin has enjoyed significant growth recently, its value is extremely volatile – and accepting payment via Bitcoin means running the risk that its value could drop overnight.
Bitcoin also doesn’t enjoy the protection offered with mainstream currency, and no central government or bank regulates it. There is no guarantee that any given financial institution or government will recognise the value of your Bitcoin assets or accept payment via these means.
Questions have also been raised about the security of Bitcoin, with Bitcoin wallets and exchanges presenting a ripe target for hackers. If your Bitcoin holdings are stolen, you have no recourse for compensation and it may be difficult – it not impossible – to recover your losses.