Tax on Cryptocurrencies and other Cryptoassets

Cryptoassets, or cryptocurrencies are digitalised currency. You have probably heard of Bitcoin or Ethereum, or Dogecoin or even Non-fungible tokens (NFTs). But you probably have not heard of how they are taxed.

Did you know you may be liable to capital gains tax (CGT) on your profits and may need to disclose this on your tax return? There is an annual exemption of £12,300 but many transactions are caught.

Did you know that using cryptocurrencies to pay for goods could be taxable?

It is important that you disclose your profits to HMRC in the correct way. In the last six months HM Revenue & Customs (HMRC) have started issuing ‘nudge’ letters but so far, they have only contacted less than 1% of UK investors. If you disclose your profits to HMRC before you receive a nudge letter, the penalties will be lower than if HMRC had ‘prompted’ you to come forward.

According to the cryptoassets manual that HMRC published, individuals will be liable to pay capital gains tax on any disposals of tokens. This is because they are treated as assets rather than as a currency.

The following types of transactions will be liable to capital gains tax (CGT):

  • Selling tokens in exchange for money
  • Exchanging tokens for a different type of token
  • Using tokens to pay for goods or services
  • Giving away tokens to another person (other than your spouse or civil partner)

That said, the following costs can be deducted before arriving at your profits:

  • Consideration originally paid for the asset
  • Transaction fees paid
  • Any advertising costs or professional costs
  • Other professional costs

The treatment of cryptocurrency is like the treatment of shares. The capital gain will be worked out as the sales proceeds, less the cost and any other allowable expenditure. The profit is then liable to capital gains tax (CGT) above the annual exemption amount of £12,300, providing you have not already used up your annual exemption allowance in the tax year.

If you have any questions or would like a free consultation, please do get in touch on 0207 384 2647

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