Guide to Tax Duties for Cryptocurrency Investors and Traders in the UK

HMRC takes a helpful view on crypto assets that have been lost or stolen. Although if you have lost your private key, you cannot claim a capital loss, you can make a negligible value claim. If your claim is accepted, you will, at a later stage, be able to claim it as a capital loss. In case mining is being done as part of a business, the crypto assets will form part of trading stock. If they are transferred out of trading stock, the business will be treated as if they bought the crypto at the value that’s being used in the trading accounts.

Once you’ve written down which crypto transactions you need to pay Capital Gains Tax on, it’s time to work out the profit. If you swap one crypto token for another, you’ll need to pay Capital Gains tax on any profits you made between buying and swapping the original token. Everyone cryptocurrency regulation uk in the UK has a Capital Gains tax-free allowance of £12,300. So if your crypto profits are under £12,300, you won’t need to pay Capital Gains tax or report your crypto profits. If you earn rewards from staking crypto, any tokens you’re awarded are classed as miscellaneous income.

Introduction to tax on cryptocurrency.

Once you’ve written down which crypto tokens you need to pay Income Tax on, you need to work out how much they were worth on the day you received them. But if you trade huge amounts regularly with a high level of organisation and sophistication, your profits may be subject to Income Tax. If you receive airdropped crypto in exchange for carrying out a service, this will be classed as miscellaneous income. It all depends how you’re earning your crypto and how much profit you’re making. If your total taxable gain is above the annual tax-free allowance, you must report and pay Capital Gains Tax. You can deduct certain allowable costs, including a proportion of the pooled cost of your tokens when working out your gain.

Speak with a tax accountant if you consider this, as capital gains tax rules may apply if you dispose of it at a later date. If your mining activity is considered a business, the mining income will be added to trading profits and be subject to income tax deductions. If you are resident but non-domiciled, your foreign income and gains can sometimes be excluded from UK tax if they are not remitted to the UK.

Crypto Capital Gains Tax UK

HMRC say that income from mining is treated as trading income if the activity is of the nature of a trade. For more information, see below How do I work out if I am ‘trading’ in cryptoassets?. You cannot offset capital losses arising on the disposal of cryptoassets against your income.

On the other hand, if you receive cryptoassets as an unrequested gift without doing anything in return then they will generally not be in scope of income tax. However, when making a gift, the person making it should consider if there are any inheritance tax or capital gains tax consequences. They are subject to income tax or capital gains tax, https://xcritical.com/ depending on the situation. The tax you pay on cryptocurrency is affected by various factors- the income you earn, how HMRC will be viewing that transaction, the type of transaction, etc. This is the most common question we get asked from individuals we speak to. Many believe that capital gains tax is only due when they sell crypto for fiat.

Non-domiciled individuals and cryptocurrency tax

The specialist team at Alexander & Co is experienced with dealing with the tax issues surrounding cryptoassets and cryptocurrency for traders, investors and businesses. We can ensure that your affairs are structured correctly, in the most tax efficient way and are compliant with HMRC. We are also able to help resolve any current HMRC investigations and by ensuring you remain compliant, minimise the likelihood of any future investigations. This rapid growth has also attracted notable attention from HMRC, who are eager to ensure that all businesses, investors and traders are paying the correct amount of tax on cryptoassets. It is important that anyone active in this sector has their tax affairs structured correctly, in a tax efficient way, whist remaining compliant with HMRC. This will help to avoid any penalties and fines as well as unplanned tax bills.