In the UK, cryptocurrency is taxed like any other asset, such as stocks or property, and is subject to capital gains tax (CGT). This means that if you make a profit from selling or exchanging cryptocurrency, you may be liable to pay CGT on the gains. This applies to both crypto to crypto transactions and sales from crypto to fiat (cash). It’s important to note that just because you haven’t cashed out doesn’t mean you don’t have a potential tax liability.
Here are some key points to consider:
- When you sell or exchange cryptocurrency, you must calculate the gain or loss for each transaction. The gain is calculated as the difference between the sale price and the purchase price (including any fees and charges).
- You can deduct any allowable expenses from the gains, such as transaction fees and the cost of acquiring the cryptocurrency.
- You are entitled to an annual tax-free allowance (also known as the “CGT exemption”) which is currently set at £12,300 for the tax year ended 5 April 2023, but this drops to £6,000 for the year ended 5 April 2024 (ie from 6 April 2023) and drops again from 6 April 2024 down to £3,000. As such, you do not have to make particularly large gains in order to need to register.
- If your total gains for the tax year are below the annual CGT exemption, you will not have to pay any tax. If your gains exceed the exemption, you will be required to pay tax at the applicable CGT rate (which depends on your income tax bracket).
- If you make losses in a year it is important to claim these losses as they can be carried forward against future gains. Losses cannot be carried back.
- It’s important to keep accurate records of all your cryptocurrency transactions, including the date of acquisition, purchase price, sale price, and any relevant expenses. This will help you to calculate your gains accurately and ensure you pay the correct amount of tax. If you undertake a large number of transactions the easiest way to record this is using crypto tax software. We recommend Cointracking to our clients (coin.tax). We have a corporate account with Cointracking and our clients benefit from discounted unlimited accounts. If you use our referral link you can save 10% on a private subscription: https://cointracking.info?ref=D841518
- If you are engaged in cryptocurrency trading or mining as a business, you may be subject to income tax and National Insurance contributions instead of CGT. Buying and selling crypto is unlikely to be treated as a ‘trade’ unless you have a high level of trades, sophisticated systems or you are trading other people’s money. If any of these apply I’d recommend getting in touch.
As tax laws are subject to change, it’s always advisable to seek professional tax advice to ensure you are complying with the latest regulations.
I offer free consultations to all new clients to help them understand their reporting requirements and what to do to make their lives easier. Feel free to get in touch at info@fusionpartners.co.uk