The taxation of cryptocurrencies

In December 2019, HMRC published guidance on its view of how crypto transactions should be treated for UK tax purposes. It stated that individuals selling cryptoassets will be subject to capital gains tax (CGT) on any profits made, over the tax-free annual allowance threshold, which will need to be reported to HMRC on a self-assessment tax return.

If you have not registered for self-assessment, you must do so six months from the end of the relevant tax year. The deadline for the current tax year is 5 October 2021.

Capital gains tax is due where there is a disposal of cryptoassets. CGT is also due if you exchange assets. In an instance where you exchange Bitcoin for Litecoin, capital gains tax will be due as this is seen as a deemed disposal for tax purposes.

Where a profit has been made, capital gains tax will apply. However, profits are only taxed once you exceed the capital gains annual allowance of £12,300.

Profits over the threshold will be taxed according to the rate of income tax you pay:

• basic rate taxpayers will pay 10% capital gains tax
• higher rate taxpayers will pay 20% capital gains tax

In some instances, HMRC may view the buying and selling of cryptoassets as ‘trading’. Under UK tax, profits made from a trade will be subject to income tax and not capital gains tax. However, this is a rare occurrence as the majority of individuals are not seen to be trading.

It is important that you accurately calculate and pay the correct amount of tax, as HMRC receives information from crypto exchanges and will look to pursue anyone who fails to provide the correct information on their tax return.