Keeping up with crypto: the tax implications

Keeping up with crypto: the tax implications

Crypto Taxes in the United Kingdom

Say your annual income is £50,000, and you’ve made a gain of £13,000 from selling Bitcoin. In the United Kingdom, gifting crypto to your spouse or civil partner is considered completely tax-free. You then bought 5,000 CRO for GBP 1,000 with a transaction fee of 0.1 ETH. Assume the ETH price has gone up to GBP 2,000 on the day of buying CRO. You then sold 5 ETH for GBP 10,000, with a selling fee of GBP 100. In addition, in a soft fork that does not create a new coin, you would not be deemed to have received any income.

Crypto Taxes in the United Kingdom

No, there is no specific obligation to declare the holding of cryptoassets to HMRC, but you have to declare your gains, losses and income. Take Bitcoin, for example, which is classified as an exchange token. Like numerous other exchange tokens, it is utilised as a medium of exchange or payment. Any gain or loss must be converted to pound sterling for the tax return, even in crypto-to-crypto trades. HMRC says to use and keep a record of “consistent methodology” when making the pound sterling valuation.

Crypto Taxation Basics

Nevertheless, the way in which these tokens are employed influences if and how they are subject to taxation. However, HMRC is very strict on business considerations and will rarely consider an individual investor as a professional trader. TokenTax content follows strict guidelines for editorial accuracy and integrity. We do not accept money from third party sites, so we can give you the most unbiased and accurate information possible. Let’s take an example of a crypto investor who buys Ethereum at multiple price points in a given year.

Your tax rate for capital gains can vary depending on your income level. By understanding your income bracket, you can make informed decisions about when to sell assets, potentially benefiting from lower tax rates. When you dispose of your mining rewards, you’ll incur a capital gain or loss depending on how the price of your crypto has changed since you originally received it.

Are Crypto Gains Taxed in the UK?.

In the case of hard forks, where you receive a new coin because of a fork, you will not be required to pay any Income Tax on the receipt of these coins. It is critical to understand that you do not pay the same flat rate of Income Tax on all of your earnings. All English and Welsh taxpayers (except those earning more than £125,140) will receive a tax-free allowance of £12,570. Then you’ll pay 20% tax on your next £37,699 of income, 40% tax on your next £99,729 of income, and 45 percent tax on any income above this amount. As a result, you’ll pay tax on your cryptocurrency at a rate ranging from 0% to 45 percent. Now that we’ve covered everything there is to know about crypto capital gains, let’s move on to crypto income and income tax.

Crypto Taxes in the United Kingdom

When it comes to capital gains, HMRC is quite generous, providing every UK taxpayer with a Capital Gains Tax Allowance of £12,300. We’ll go into more detail later, but this means you’ll only pay Capital Gains Tax on capital gains that exceed your £12,300 allowance. Don’t worry, you won’t have to pay tax on the entire amount when you sell something. You’ll only be taxed on cryptocurrency gains, so whenever you make a profit. Further, if that individual goes on to dispose of those cryptoassets and realises a gain, that gain may be taxable in the UK too, without the benefit of the remittance basis of taxation.

How to legally reduce your crypto taxes?

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. Blockpit creates the most comprehensive crypto tax reports in PDF format. The report provides information about all your balances and transactions and can be used as proof of origin with banks or tax advisors.

Keep in mind that when you sell this cryptocurrency, you will be subject to Capital Gains Tax. In the United Kingdom, donating cryptocurrency to a registered charity is tax-free. Each DeFi protocol operates slightly differently, and HMRC has provided no specific guidance on this yet.

Carry Forward of Losses

Here, you’ll be able to fill out a Self Assessment Tax Return and a Capital Gains Tax Summary. As a result, claiming capital losses can significantly reduce your tax liability, and even bring your total taxable gains below the tax-free allowance amount of £12,600. However, you should keep a record of how much it cost to acquire your cryptocurrency so that you can calculate your capital gains and losses in the case of a future disposal. In the United Kingdom, cryptocurrency is subject to capital gains and income tax. In the United Kingdom, cryptocurrency is subject to capital gains and ordinary income tax.

Gifting crypto to your spouse or civil partner is also exempt from Capital Gains Tax. Furthermore, each tax year there is a tax-free Crypto Taxes in the United Kingdom allowance, known as the Annual Exempt Amount. Once you’ve calculated your gains or losses, it’s time to report them to HMRC.

Record-Keeping Requirements for Crypto Tax in the UK

Airdrops are basically some free coins you received from a marketing campaign or events. In most countries, when you invest in crypto and realize profits, they will be subject to taxes. In this guide, we will take you through the crypto taxation landscape in the United Kingdom (UK).

  • For example, some protocols may require you to deposit ETH to receive stETH.
  • HMRC announced plans to investigate digital currency holders for undeclared gains in October 2021.
  • You won’t be required to report your crypto to the HMRC unless you earn or dispose of your holdings.
  • DeFi staking rewards  may be subject to capital gains or income tax depending on the specific mechanisms of your DeFi protocol.