Investing and trading in cryptocurrency has become increasingly popular and so too has the frequency of queries we receive regarding cryptocurrency. As ever, it’s important to understand the tax treatment and your reporting obligations.
How are cryptocurrencies taxed in the UK?
Cryptocurrency is either subject to Capital Gains Tax (if you make a gain from selling, swapping or spending cryptocurreny) or Income Tax (if you’re making an income).
Cryptocurrency isn’t taxed if you are:
- Holding cryptocurrecny
- Buying in GBP
- Transferring cryptocurrency between your own wallets or exchanges
- Donating cryptocurrency to charity
- Gifting cryptocurrecny to your spouse
Paying Capital Gains Tax on crypto
HMRC charges tax on cryptocurrency in the same way as other investments, meaning gains are subject to Capital Gains Tax (CGT), which are reported on a Self-Assessment tax return when they exceed the £12,300 annual exemption. CGT is due on the disposal of cryptocurrenct assets, this could include:
- exchanging one type of cryptocurrency asset for another
- selling cryptocurrency assets for money
- using cryptocurrency assets for purchases
- giving away cryptocurrency assets (excluding gifting to spouse)
Only gains are taxed, so you only pay tax when a profit is made.
How much Capital Gains Tax do I pay on cryptocurrency?
The amount of Capital Gains Tax you will need to pay depends on how much you earn.
The rates for 2022-23 are:
|Tax rate||Taxable income|
|10%||Basic Rate Income Band (up to £50,270)|
|20%||Higher Rate Income Band (up to £150,000)|
|20%||Additional Rate Income Band (more than £150,000)|
To calculate the Capital Gains Tax to pay:
- Work out the Cost Basis – You’ll need to add the original price that you paid to buy your cryptocurrency and any transaction fees incurred – this is known as the Cost Basis. HMRC has specific rules on this, further guidance is available on GOV.UK here.
- The Cost Basis is subtracted from the price you sold your cryptocurrency for. If you have a profit you will need to pay CGT on this. However, if you made a loss, please jump to step 4.
- You can deduct your capital gains allowance of £12,300 from your profit (if not already applied during the same tax year) and apply your tax rate based on the table above to calculate your CGT.
- If you made a loss you won’t need to pay CGT, but you should keep good records and register any losses with HMRC, as they can be offset against other capital gains or carried forward to be offset against future gains. You can carry forward losses indefinitely until they are fully utilised. However, there is a four-year window to register your loss after which it will be lost. Given much publicity on this subject, it’s worth noting that stolen cryptocurrency is not considered a capital loss, however it may be possible in some exceptions to make a negligible value claim and later claim a capital loss.
Leave this work to an experienced tax advisor – Contact us to discuss how we can take care of reporting your cryptocurrency Capital Gains Tax.
How much Income Tax do I pay on cryptocurrency?
Cryptocurrency is taxed as income when it comes from any of the following sources:
- Getting paid in cryptocurrency (also subject to National Insurance)
- Staking rewards
- Mining tokens
- Airdrops – in most instances.
If you need to pay Income Tax, it will count towards your taxable income. 2022-23 Tax Bands are:
|Tax rate||Taxable income||Band|
|0%||Up to £12,570||Personal allowance|
|20%||£12,571 – £50,270||Basic rate|
|40%||£50,271 – £150,000||Higher rate|
To work out the applicable rates, you will need to add your cryptocurrency income to your regular income. This means you only pay the specified tax rate on that portion of income. For example, if you’re in the 40% tax bracket, you only pay 40% tax on the segment of earnings in that Income Tax band. For the lower part of your earnings, you’ll still pay the appropriate 20% or 0%.
In some instances, you’ll may also need to make NI contributions on cryptocurrency income.
Leave this work to an experienced tax advisor – Contact us to discuss how we can take care of reporting your cryptocurrency income via your Self-Assessment tax return.
What records do I need to keep for HMRC?
Some exchanges may not keep detailed information about cryptocurrency transactions. The onus is on the individual to keep their own records for each cryptocurrency asset transaction. These must include:
- the type of cryptocurrency asset
- date of the transaction
- if they were bought or sold
- number of units involved
- value of the transaction in GBP (as at the date of the transaction)
- cumulative total of the investment units held
- bank statements and wallet addresses, as these may be needed for an enquiry or review.
Reporting cryptocurrency taxes to HMRC
You will need to declare your cryptocurrency taxes in your Self-Assessment tax return. Once you’ve filed your Self-Assessment Tax Return reporting your cryptocurrency gains and/or income – HMRC will confirm how much tax you owe and when this must be paid.
Cryptocurrency tax for businesses and companies
If you’re running a business or company that involves cryptocurrency transactions (such as buying, selling, mining or selling goods in exchange for cryptocurrency), then the rules are more complex.
It may also mean that you are liable to pay taxes such as Capital Gains Tax, Income Tax, Corporation Tax, Stamp Duties and even VAT depending on the type of transaction.
Please note, even if you’re an individual, HMRC may decide to treat you as a business if they deem your level of activity is comparable to a business.
HMRC’s detailed cryptoassets manual has further details on the tax treatment of business activities that involve cryptocurrency.
Do HMRC target cryptocurrency investors?
In October 2021, HMRC announced that it will begin issuing ‘nudge’ letters to cryptocurrency investors, warning them to check that their transactions have been properly reported and the correct tax paid.
HMRC are able to gather a full list of cryptocurrency holders by sending data requests to UK-based cryptocurrency exchanges and other financial institutions.
Investors should declare their cryptocurrency income, as those who are later found to have misreported their cryptocurrency holdings could be at risk of penalty fines or prosecution.
Self-Assessment tax return service for cryptocurrency
If you are involved in cryptocurrency investing and need help to get your cryptocurrency tax right, please get in touch and we’ll provide you with a quote for completing your tax return.