Crypto Tax in the UK: are crypto gains taxable?

Cryptocurrencies are quickly becoming a significant part of our financial landscape. With the rise of digital assets, new questions and plenty of Google searches about taxation and regulatory compliance have emerged, namely: "Do you have to pay tax on cryptocurrency UK?"

In the United Kingdom, as in many jurisdictions worldwide, the gains made from cryptocurrencies are indeed taxable. This article will provide an in-depth overview of cryptocurrency taxes in the UK.

How much tax do you pay on crypto in the UK?

The amount of pay tax you'll pay on your cryptocurrency profits in the UK depends on the specifics of your crypto activities.

In general, cryptocurrency profits are subject to either you having to pay Income Tax or pay Capital Gains Tax. The exact pay tax rate will depend on your total income, the pay tax bracket you fall under, and the nature of your gains.

For instance, if your cryptocurrency gains are deemed as income (e.g., from mining activities), you could pay anywhere between 20% to 45% pay tax, depending on your total income.

On the other hand, if your gains are considered capital (i.e., from buying and selling crypto), you could pay between 10% to 20% depending on your income and the size of your gain.

It's crucial to remember that pay tax is applied to the profit you make, not the total sale value. That means you would deduct the cost of the asset (what you initially paid) from the sale value to calculate your taxable gain.

How to get ready for crypto tax season in the UK & How to pay tax on cryptocurrency UK

Navigating the crypto tax landscape in the UK might seem daunting, but it doesn't have to be.

With an understanding of the basics and some preparation, you can approach the tax season with confidence.

When you need to pay crypto tax as Income Tax

Cryptocurrency profits can be subject to pay Income Tax under several circumstances:

Are Crypto Tax UK Transactions Taxable?

Transactions involving cryptocurrencies can indeed be taxable in the UK.

If your activities involving cryptocurrencies are part of your employment, you receive tokens from a mining operation, staking, or as part of an airdrop, these earnings are viewed as income. These gains are therefore subject to pay Income Tax according to your specific income tax rate.

Must You Pay Taxes on Cryptocurrency that is Lost or Stolen?

While it might seem like a gray area, the general stance of HMRC is that if you lose access to your cryptocurrency or it gets stolen, you won't typically be liable to pay tax on it.

This is because the tax is on the gain you make, and if you no longer have access to the asset, you haven't made a gain.

However, it's crucial to consult with a tax advisor to understand the specific circumstances that apply to you.

Must You Pay Taxes on Crypto Donations?

If you receive cryptocurrency as a donation, it is generally not subject to pay Income Tax. This is because it's considered a gift and isn't part of your taxable income.

However, if you later sell, trade, or gift this cryptocurrency, you may become subject to pay Capital Gains Tax on any profit.

For example, if you donate cryptocurrency to charity, there may be a Capital Gains Tax liability. The specifics can be complex and depend on several factors, so it's recommended to consult with a tax advisor or HMRC directly for your situation.

Gifting crypto to your spouse or civil partner

One common question is whether you can gift crypto assets to your spouse or civil partner without having to pay Capital Gains Tax. The answer is yes, you can. However, if your spouse or civil partner later disposes of the crypto assets, they may need to pay Capital Gains Tax on any profit.

When you need to pay crypto tax as Capital Gains Tax

A Capital Gains Tax bill applies when you sell your crypto assets for more than you paid for them. The profit, also known as the capital gain, is subject to you having to pay capital gains tax.

Capital Gains UK Tax Free Allowance

Each individual in the UK has a tax-free allowance for capital gains, known as the Annual Exempt Amount.

Currently, the Annual Exempt Amount for capital gains is £12,300. If your total gains fall below this amount within a tax year, you won't have to pay Capital Gains Tax.

This allowance can offer significant tax savings if you strategically plan your disposals.

When to file crypto taxes to HMRC in the UK

Timely filing of your crypto taxes with HM Revenue and Customs (HMRC) in the UK is a legal obligation that comes with owning or trading cryptocurrencies. Neglecting this duty can result in penalties and surcharges. You must report your crypto tax by the 31st of January following the tax year during which the disposal occurred.

HMRC regards cryptocurrencies as property rather than currency. As such, tax events are typically triggered when you dispose of your crypto assets, which can be through selling, gifting, exchanging for a different crypto, or using crypto to pay for goods or services.

Here are some key timelines you need to be aware of:

1. Tax Year: The UK tax year runs from April 6th of one year to April 5th of the next. All your crypto transactions within this period should be reported in your tax returns.
2. Submission Deadline: The deadline for sending a tax return is midnight on January 31st following the end of the tax year. For example, for the tax year running from 6th April 2022 to 5th April 2023, the deadline would be midnight on 31st January 2024.
3. Payment Deadline: The deadline for paying the tax you owe is also midnight on January 31st following the end of the tax year.

Ensure to account for all your crypto tax activities correctly and file your tax returns on time to avoid unnecessary hassles with HMRC.

When do you need to report your crypto taxes to HMRC?

You must report your crypto tax to HMRC by the 31st of January following the tax year during which the disposal occurred.

For example, for disposals made in the 2022/2023 tax year, you should report these on your self-assessment tax return by January 31, 2024.

Can HMRC track crypto?

Yes, HMRC can track cryptocurrency transactions. HMRC has been ramping up its efforts to ensure crypto tax compliance, which includes seeking information from crypto exchanges.

This data can be used to identify those who might not be paying the correct amount of tax on their crypto gains.

Which crypto exchanges report to HMRC?

Most cryptocurrency exchanges, both domestic and international, will cooperate with HMRC and provide user transaction data when requested.

This includes major exchanges such as Binance, Coinbase, and Kraken.

What happens if you make a loss on crypto assets?

Investing in cryptocurrency, like any investment, carries a risk of loss. If you sell your cryptocurrency for less than you paid for it, this constitutes a capital loss.

You can report these losses to HMRC, which can be offset against future capital gains, potentially reducing your capital gains tax bill in future years.

Can you deduct crypto losses on taxes in the UK?

It's also crucial to note that you have four years to register your losses with HMRC, otherwise, you cannot carry them forward to offset future gains.

This rule applies from the end of the tax year in which the losses occurred, so it's important to keep accurate records and report losses in a timely manner

Deduct the cost basis from the value of your crypto at disposal

When calculating your taxable gains from cryptocurrencies, one key aspect is the cost basis. This is the amount you initially paid for your crypto assets.

By deducting this cost basis from the value of your crypto at the point of disposal (i.e., when you sell, trade, or gift it), you can determine your actual gain, which is the amount subject to tax.

It's crucial to maintain accurate records of your transactions to establish the cost basis. This includes the date of the transaction, the amount of crypto acquired, and the price in GBP at the time of purchase.

What to do if you've permanently lost access to your cryptocurrency?

If you can prove that you have permanently lost access to your cryptocurrencies, you may be able to make a 'negligible value claim' with HMRC.

If accepted, this could allow you to offset the loss against your other capital gains, effectively reducing your overall tax liability.

This process can be complex, and it's recommended to consult with a tax advisor or HMRC directly to ensure all the requirements are met.

Calculate the Fair Market Value (FMV) of your crypto income

For tax purposes, it's essential to determine the Fair Market Value (FMV) of your cryptocurrency income. FMV is the price that the crypto would sell for on the open market. It's important to note that this value can fluctuate greatly due to the volatile nature of cryptocurrencies.

The FMV of your cryptocurrency is considered as income if you received it from mining, staking, airdrops, or as payment for goods and services.

It's essential to report this income on your self-assessment tax return and pay the appropriate tax.

Using Crypto Tax UK Reporting Software

Given the complexity of tracking cryptocurrency transactions and calculating taxes, many individuals and businesses opt to use crypto tax software.

These tools can automate much of the process, tracking your transactions across multiple exchanges, calculating your gains and losses, and producing tax reports that are ready to submit to HMRC.

These software solutions can be particularly useful if you're a frequent trader or have crypto assets spread across multiple platforms.

They also help ensure accuracy, compliance, and timely reporting, reducing the likelihood of errors that could lead to penalties.

Here are a few notable examples:

Koinly

Koinly is a widely-used software solution for crypto tax calculations. It simplifies the process of calculating your capital gains by using Share Pooling, in line with HMRC's guidelines. Koinly is available in over 20 countries, including the UK.

You can initially use Koinly for free, and pay only when you're ready to generate tax reports.

To use Koinly, you first need to import your data from your crypto exchanges, wallets, and public addresses. Then you can use the platform to review your transactions and create various tax reports, which include CGT, income tax, margin trades, options and future trade suggestions, and audit logs.

Recap

Recap is another tool, particularly popular in the UK. Founded in 2018, Recap helps to address common queries related to crypto tax.

Recap offers a free plan with unlimited transactions. However, like Koinly, a paid plan is needed to generate tax reports.

Tokentax

Tokentax goes beyond typical tax calculators and supports 18 countries, including the UK. They were the first crypto tax software to use API or spreadsheet/CSV import.

To use Tokentax, you'll need to import your cryptocurrency exchange trade history, verify all your historical data and ensure that the tax calculations are accurate. After deciding on an accounting method, you can then export your tax reports and include your crypto tax on your tax return.

Conclusion

In conclusion, it's clear that the tax implications of crypto tax in the UK are not to be taken lightly. Both income and capital gains from crypto assets are taxable, and it's crucial to understand the specifics of your tax liability.

It's important to note that HMRC has been tracking crypto transactions from as far back as 2014 and receives new information whenever a new signup is completed using Know Your Customer (KYC) protocols. Therefore, ensuring compliance with tax obligations is not only a legal duty but also something HMRC has the means to enforce.

As with any tax matter, if you're unsure about your obligations, it's always a good idea to seek professional advice.

You can sign up for a Nebeus account to open an account to bridge crypto and fiat.

La inversión en criptoactivos no está regulada, puede no ser adecuada para inversores minoristas y se puede perder la totalidad del monto invertido.