Cryptocurrency Tax in the UK – What You Need to Know.

Article | Mary Shoesmith | 13th July 2022

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What is Cryptocurrency?

Cryptoassets (also known as ‘cryptocurrency’ or ‘tokens’) are digital. Unlike other currencies, they do not rely on central banks or third parties to verify transactions and create new currency units.

Presently, there are thousands of cryptocurrencies available, and there have been thousands that have failed. Some coins are abandoned by the developers, used as scams or just fail to deliver on promises.

The reason so many are in existence is that it is incredibly easy to create a new cryptocurrency. Many new coins are launched on an existing network, such as the Ethereum network, which will have the necessary infrastructure in place already.

The first cryptocurrency, Bitcoin, began trading in 2008 with a value of less than a penny per coin. Subsequently, the value has climbed into the tens and then hundreds of pounds, and eventually into the thousands of pounds. By November 2021 it hit an all-time high of over £51,000 per coin. Since then, the price has been very volatile.

The potential for significant profits in the world of crypto currency also bring with it the question of tax. This article will look at what UK taxes will apply to your crypto gains, and how much you should expect to pay.

crypto gains

Are Crypto Gains Taxed in the UK?

Contrary to public opinion, cryptoassets may be subject to tax in the UK.  Due to the complex nature, professional advice is recommended but the brief implications are as follows:

Capital Gains Tax for Cryptoassets

Generally, if a cryptoasset is sold for a profit, this will result in a capital gain. Crypto gains over the annual tax-free amount will be chargeable to capital gains tax at either 10% or 20% depending on your other income and need to be reported on a self-assessment tax return.

Even if total gains during the tax year are within the annual exempt amount but the total proceeds (being the amount the assets are sold for) exceed four times the annual exempt amount, these disposals will need to be reported on your tax return.

CAUTION – Most platforms will allow individuals to purchase one cryptoasset with another cryptoasset. Such an exchange will be treated as a disposal of the original asset for capital gains tax purposes. This makes it quite easy to inadvertently breach the limits above.

In instances where the sale price is less than the purchase price, this results in a capital loss. Losses are initially offset against any other capital gains arising in the same tax year. Any unused capital losses are carried forward and offset against chargeable capital gains in future years.

Get in contact with our team to help you manage and report the capital gains tax you pay on cryptoassets.

Income Tax for Cryptoassets

Whilst most crypto transactions will be treated as capital transactions, certain activities may be subject to income tax instead, these would include mining, staking and receiving airdrops.

These are either treated as miscellaneous income or regarded as a trade (self-employment) and are taxable at either 20%, 40% or 45% depending on your other income.

Inheritance Tax (IHT) for Cryptoassets

The value of any cryptoassets would be included in your estate for IHT purposes and potentially subject to 40% IHT. Due to the nature of crypto, accessing this information by your executors is challenging. To mitigate this problem, many platforms now let you authorise someone to access your account on your death.

If you have made the leap into crypto and would like help reporting this, please get in contact with James Willett or Martin Roberts at PEM.

Written by James Willett, Tax Adviser.