Check if you need to pay tax when you sell cryptoassets
As in most countries, different tax rules apply if you are paying for a cryptocurrency with fiat currency such as GBP or using another cryptocurrency. HMRC has stated that the concept of pooling should be used in the UK to calculate the cost basis of cryptocurrencies. HMRC goes on to say that cryptocurrencies fall within this description and should therefore be pooled. This guide is quite extensive due to the complex nature of cryptocurrency taxes. Cryptocurrency losses can be used to offset gains from cryptocurrency, stocks, and other assets, a tactic known as tax loss harvesting.
As a result, you can only carry forward a capital loss for a maximum of four years before it can no longer be used to offset capital gains. In the United Kingdom, there is no limit to the size of a capital loss that can be offset against capital gains. This means you can use as many capital losses as you want to reduce your capital gains to the Capital Gains Tax free allowance amount of £12,300, resulting in no Capital Gains Tax. You will not have to pay Capital Gains Tax on any capital losses, but you should keep track of them because you can offset capital losses against capital gains to pay less tax overall. Your cost basis is the amount you paid for your cryptocurrency plus any transaction fees. This situs of exchange tokens is only based on HMRC guidance and has not been specifically legislated for.
How is cryptocurrency taxed in the UK?
When the market tanks six months later, Sarah sells the rest of her Ethereum at £120 for £2000. At the same time she also sells half of her BAT for 18p, receiving £1800. This is crypto, so the likelihood that at some point you bought a token whose value is now zero is reasonably high. First thing you need to do is work out whether you’re classified by HMRC as an investor or a trader.  HM Revenue & Customs, HMRC internal manual, Cryptoassets Manual, UK.gov (March 30, 2021); Coinfirm, UK Cryptocurrency Regulations, Coinfirm (January 11, 2021).
Moving crypto between wallets you own – either privately or as an account holder on an exchange – is not a capital gains event. If you’re the gift recipient, you only have to pay capital gains when you dispose of the gifted cryptocurrency. In this case, use the market value of the gift on the day you received it when calculating any capital gain or loss. In some situations, staking an asset can be considered a taxable transaction subject to capital gains tax. For example, when you deposit ETH and receive stETH, you will incur a capital gain or loss as this will likely be seen as a taxable crypto-to-crypto trade. If the price of your cryptocurrency at disposal is lower than your original cost basis, you can claim a capital loss.
How to calculate capital gains UK
As such, its regulatory perimeter expanded to include crypto and involved entities with new definitions of “virtual currency” and “virtual asset service providers” (or VASPs). Companies subject to the ordinary corporation tax regime should include the profits on exchange movements between currencies in the taxable profits, and losses are deductible. All transactions in cryptocurrency Crypto Taxes in the United Kingdom are exempt from VAT and any revenue from cryptocurrency mining is generally outside the scope of VAT. Interestingly, individuals who purchase and store cryptocurrencies for “personal use” (such as long term investment and holding) and not for speculation, won’t have their assets taxed. Because of this, new regulations around the way governments tax cryptocurrencies constantly emerge.
- If you have a large number of transactions, deducting the exchange fees can make a significant impact on your total tax liability.
- Their view is that an exchange token is located wherever the beneficial owner is resident (provided it is not a digital representation of another underlying asset).
- While there’s no way to legally avoid your crypto taxes, there are strategies that you can use to reduce them.
- As you can see, Emma’s cost basis per ETH in her shared pool is £1,600.
- You may recall that Coinbase provided data on UK customers who transacted more than £5000 in cryptocurrency between 2017 and 2019 in 2020.
- Though most of the group’s funding comes from other sources, groups linked to Hamas have continued to solicit donations through crypto since its weekend attacks, per TRM.
- Crypto is seen as a potential tool in financial crimes because it allows individuals to move money outside the traditional banking system with pseudo-anonymity and the use of decentralized platforms.
It all depends on the scale, but if you’re working a regular job alongside crypto investing, chances are you’ll be classified as a private investor. If you give cryptocurrency to someone other than your spouse or civil partner as a gift, you must calculate the market value (in pound sterling) of the cryptocurrency on the date it was given as a gift. For Capital Gains Tax purposes, this will be considered sales proceeds. When you receive an airdrop, you will not only https://www.tokenexus.com/ pay Income Tax, but you will also pay Capital Gains Tax if you later sell, swap, spend, or gift the coins or tokens you received. This is significant because when you later spend, sell, swap, or gift coins obtained from a hard fork, they will still be subject to Capital Gains Tax, just like any other cryptocurrency. Buying cryptocurrency with stablecoins is considered trading cryptocurrency for cryptocurrency, so any profits are subject to Capital Gains Tax.
However, HMRC does not consider cryptocurrencies to be a legitimate currency in the same way that the British pound does. Instead, it’s viewed as a property, which is a type of capital asset like a rental home or a stock. Check if the tokens you’re paid are classed as readily convertible assets (an asset that can be easily exchanged for cash). You do not need to pay tax on tokens when you buy them, but you may need to pay tax when you sell them.
Her Majesty’s Revenue and Customs (HMRC) has published guidelines and a Cryptoassets Manual detailing how cryptocurrencies are taxed in the UK. The most important takeaway is that all individuals are taxed at the time when disposing of an asset. The amount of tax you’ll need to pay on your capital gains is determined by both your overall taxable income and the amount of capital gains you’ve made. Your allowable cost is the cost of the cryptoasset you acquired minus any available deductions. The calculation of gains or losses can be complex due to the volatility of cryptocurrencies and the fact that they are often traded in pairs. When calculating the gain or loss for CGT purposes, the Sterling value of the cryptocurrency at the time of acquisition and disposal must be used.
Crypto capital gains tax rules
They’re utilising this information to send nudge letters to crypto investors, reminding them to report bitcoin to HMRC, and to contact investors they feel are dodging HMRC cryptocurrency taxes. In Spain, holding cryptocurrency as an investment means it is subject to capital gains tax, which is applied when the cryptocurrency is handed over by the taxpayer. After Satoshi Nakamoto introduced Bitcoin as a “peer-to-peer electronic cash system,” the term “cryptocurrency” became more popular.
- Most people who engage with cryptocurrencies will be considered investors and, as a general rule, their cryptocurrency transactions will be subject to Capital Gains Tax (CGT).
- On the other hand, the related cost of mining (e.g. electricity costs, buying equipment) is categorized as allowable expenses for deduction to the taxable income.
- This also means it’s possible to be a cryptocurrency trader and a stock market investor and vice versa.
- Generally, cryptocurrencies are regarded as an asset for tax purposes.
- For example, when a gas fee is charged due to a failed blockchain transaction.
- Rather than assessing each trade as a capital gains event, sells are seen as trading income, while buys are considered trade purchases.