Do I need to report my crypto sales?
Any transaction which generates a gain or loss is treated as disposal for Capital Gains Tax purposes. If you have more than £12,300 of gains in a tax year, then you will need to declare this for your cryptocurrencies.
Are my crypto holdings taxable in the UK?
Crypto assets are secure digital representations of value or contractual rights that can be transferred, stored, or traded electronically with others. There are many different types of crypto assets out there, which work in different ways.
HMRC will find that individuals own cryptocurrencies as a personal investment with the intent to make money or make purchases of their choosing.
Any transaction which generates a gain is treated as disposal for Capital Gains Tax purposes. If you have more than £12,300 of gains in a tax year, then you will need to declare this for your cryptocurrencies.
In other instances all individuals will be liable to taxation on cryptocurrencies received from mining, airdrop, confirmation rewards, and crypto received as salary from an employer. The latter will be subject to Income Tax and National Insurance contributions through the payroll.
Crypto assets donated to charity do not apply to Capital Gains Tax unless the donation is worth more than what you bought it for. Note that exchanging one cryptocurrency for another is also classified as a taxable event on the date of disposal.
Potential losses made from crypto can be deducted from the overall Capital Gains, reducing a tax liability.
Real life scenario
Let’s take this further with an example...
Your friend Tony bought £100's worth of bitcoin (BTC) and sells it when it's worth £10,000. During this time, he also gains an additional £1,000 from stocks, taxable to Capital Gains Tax.
Tony is also a higher rate taxpayer and has a salary of £80,000.
So, what is the Capital Gains Tax due by Tony?
- Bitcoin: £10,000 - £100 = £9,900
- Stocks: £1,000
- Total gains: £9,900 + £1,000 = £10,900
So, £10,900 is the total gains that Tony has.
Tony only has to pay Capital Gains Tax on the overall gains above his tax-free allowance (called the Annual Exempt Amount). For this tax year, this allowance is £12,300.
Tony's amount of £10,900 falls under this allowance. So he will not be deemed taxable on this amount.
Should his gains exceed this allowance, he will be taxed on the amount above the £12,300 at 20%. That's because he has no unused basic rate band to allocate the gain against and he is a higher rate taxpayer.
For further technical information, do contact a tax advisor who has handled cases with cryptocurrencies. It is worth noting that HMRC are now actively investigating any instances of tax evasion with cryptocurrencies. And penalties and fines can be applied if they find out you've not paid your taxes.
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