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Crypto Currency, My (Limited) Experiences and Their Taxation (Sam Bacall)

The Crypto craze continues to rage, with amateur investors continually buying into the latest flavour of the week and there is seemingly no end to the increasing trend in the prices.

My Story

Being the high risk, high stakes kind of player I am, I have dabbled in Crypto myself, risking £100 of my hard-earned capital split following careful research between Dogecoin (because Elon Musk told me to) and SHIBA (because my brothers-in-law’s brother told him to). The balance currently stands at £44 and I have high hopes for the future….

Some facts

Cryptocurrencies are stored in a virtual wallet accessed via an App or Webpage, there is no centralised system, banks or government to regulate them. Every transaction is recorded in ‘blockchain’, a digital system that records details of transactions in multiple places at the same time.

UK Taxation

HMRC does not consider cryptoassets to be money or currency. Instead grouping assets into four main categories:

  • Exchange tokens – Intended to be used as a means of payment and this includes the most well-known token, the bitcoin.
  • Utility tokens – This provides the holder with access to particular goods or services on a platform.
  • Security tokens – This provides the holder with particular rights or interests in a business, such as ownership or entitlement to a share in future profits.
  • Stable coins – These tokens minimise volatility as they are aligned to something that is considered to have a stable value, such as precious metals.

There are no tax laws that apply specifically to crypto assets. Instead, existing tax laws are applied.

Capital Gains Tax

UK residents are taxed on gains made on these assets. The applicable tax is generally capital gains tax, therefore if you were to buy an asset for £10,000 and sell for £30,000, you would be taxed at either 10% or 20% (depending on your tax bracket) on the £20,000 gain. Note you would only be taxed on the gain above your tax-free allowance of £12,300 (at the time of writing). Therefore, in this example you would be taxed on £7,700.

It is worth noting you only get taxed following a disposal.

(My own investment above would need to make a gain of 12,200% before any tax is incurred on disposal!)

Businesses are taxed at the corporation tax rate on any gains and do not have an annual allowance.

Income Tax

HMRC may take the view that an individual’s activities are sufficiently frequent to constitute “trading”. At which point profits will be subject to income tax.

Activities such as cryptocurrency “mining” (the process of creating new ‘coins’ and processing transactions on the blockchain) and “staking” (too complicated to explain in short!) could be subject to income tax.

Calculating your tax payable

There are various considerations when working out what tax you need to pay on Crypto gains/profits:

  • Certain ‘allowable’ costs which can be offset against a gain – including transaction fees, advertising, legal fees and valuation costs.
  • Pooling – the grouping of tokens for tax purposes, designed by HMRC to stop crypto investors from manipulating the system by selling their holdings at a loss to reduce taxes and repurchasing them shortly after.
  • Accurate records are required – its important to keep your own records, including – type of token, dates, number, values, bank statements and wallet information.

This article only provides brief highlights of the taxation considerations around Cryptocurrency and is not financial advice.

Not paying the correct tax could lead to genuine consequences, therefore should you require any further information, please get in touch with the team at Freedman, Frankl and Taylor Chartered Accountants.


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