How am I taxed on my Cryptocurrency?

Published by Declan Bennett on 1 December 2021

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Cryptoassets like Bitcoin and other Cryptocurrency have been attracting a lot of attention over the last few years with Bitcoin reaching a recent all time high of just under $69,000 per coin. With the explosion of interest in recent years and increased accessibility into the markets, a lot more people could potentially be sitting on large unrealised gains and looking to cash in on their investments.

HMRC’s dive into Cryptocurrency

HMRC have had Cryptocurrencies on their radar since 2018 when their Cryptoassets Taskforce released their final report, they have recently expanded their guidance via their manuals on 30th March 2021. With Cryptoassets making use of decentralised technologies all transactions made by currency holders are stored on the public ledger called blockchain. No one person has control over the blockchain however as it is decentralised anyone can access the information stored there.

HMRC have recently used the decentralised nature of the blockchain to their advantage to access the information relevant to UK Tax Payers. With this information they have sent ‘Nudge’ letters to individuals in November 2021 who they believe may need to pay Capital gains tax (CGT) for the 2020/21 tax year, this raises a big question for a lot of individuals – How am I taxed on my Cryptocurrency?

I’m looking to sell my Cryptoasset as an individual, what do I need to know?

The majority of individuals would have held/hold their Cryptoassets as a personal investment, this is similar to holding shares in a company where there is no tax charge on the asset until it is disposed of. Disposal may not necessarily just be a simple sale of your holding, you are also deemed to make a disposal if you are exchanging coins, using coins to buy assets, or even gifting coins to friends/family.

You will only be charged tax on the net disposal proceeds of any Cryptoassets you sell, this takes into account the original base cost of the asset and any fees like the ‘Gas’ fee on purchase and platform transaction fees. If you are making multiple acquisitions/disposals of the same type of asset/coin you may need to follow a certain set of rules to calculate the pooled base cost of the asset. There are unique rules applicable if you dispose of any Cryptoassets and re-purchase the same asset within 30 days of sale.

Each individual is entitled to an annual CGT exemption (£12,300 in 2021/22) and then taxed at 10%/20% depending on what rate taxpayer they are (2021/22 rates). These rates are subject to change and with HMRC looking to restore public funds after COVID this could change.

I’ve made a large number of transactions and now work with Crypto full time, do my disposals follow the same treatment?

Although HMRC have sent their ‘Nudge’ letters discussing CGT there is the potential with any investment activity that you may be considered to be trading and not disposing of a personal investment asset. If you are considered to be trading you will be taxed at different rates of Tax to CGT as well as be subject to additional reporting obligations. Each case is unique and relies on a variety of different factors to determine if an individual is trading or not.

So, what’s next?

Although HMRC have a variety of information available to them, the responsibility is still on the individual Taxpayer to report and pay any tax due on any disposals in line with UK Tax legislation. The UK tax year runs from the 6th April in one year to 5th April the following year, any taxable income must be reported with any outstanding tax paid by the 31st January following the Tax Year end. Therefore, any disposals made between 6th April 2020 – 5th April 2021 will need to be reported by 31 January 2022 (just over 2 months away)

We have a dedicated Team to assist with all your Cryptoassets or Cryptocurrency questions and would be more than happy to assist you with your UK tax obligations.

If you would like further advice on the tax implications, please don’t hesitate to get in touch with us here.

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