Deep Dive Into UK Taxes & Crypto

Deep Dive UK Taxes Crypto

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The “T” Word

Not the most exciting topic in the world but a very important thing to be aware of nonetheless! I’ll be sharing what I’ve found out so far regarding the UK’s approach as I live here but it goes without saying that you should do your own research on this and this isn’t legal, financial or tax advice! Also, each country has its own laws and I don’t know how it works elsewhere. Anyway, let’s put our scuba diving gear on and dive in!

History Of UK Government’s Approach To Crypto

From when Bitcoin first launched up until about 2018, crypto was considered “gambling” by Her Majesty’s Revenue & Customs (HMRC). This meant any crypto you earned, bought or traded out to GBP would be tax exempt and considered as “prize money”. How times have changed!

At the beginning of 2019, the policy changed due to findings from the Government’s “Cryptoassets Task Force” – the full 58 page report can be read at your leisure here. These changes meant that you’d have to start paying Capital Gains Tax on gains over the minimum threshold when you cashed out any crypto to GBP.

At the end of 2019, the UK government changed their tack once again where you need to pay Capital Gains tax when you “dispose your cryptoassets” – including trading between different cryptocurrencies, e.g. between HIVE & BTC. This is the current situation today.

Making sense so far?

Capital Gains & Income Tax

Whether you get paid in crypto for working, day trading or you’re just buying and holding for long term appreciation, you’ll be subjected to either Capital Gains or Income Tax. Please check the full information on the “Cryptoassets: Tax for Individuals” page on HMRC’s website for some light reading!

Capital Gains Tax

In most cases, people just buy crypto, hold it, hope it goes up in value, then sell it off or exchange it later on. When you dispose of that crypto, you’ll need to pay Capital Gains Tax on any gains you make that are above the Tax-Free Allowance (currently £12,300 in a tax year). However, this amount might be changing due to covid spending – more on that later.

Here’s a quick overview of some definitions relating to Capital Gains and crypto from HMRC:

  • Disposal” – selling cryptoassets for money; exchanging cryptoassets for a different type of cryptoasset; using cryptoassets to pay for goods or services; giving away cryptoassets to another person.
  • Allowable Costs” – costs that can be used when calculating a gain or loss, such as the amount originally paid in GBP for the crypto and transaction fees.
  • Pooling” – For example, you bought 300 HIVE for £100 3 months ago and wanted to buy 600 HIVE for £50 today. You’d just combine them in to one pool of £150 for 900 HIVE.
  • Blockchain Forks/Airdrops” – Any new tokens you receive from a fork or airdrop go in to their own separate pool e.g. HIVE, STEEM and BLURT would all have their own pools

If you make any losses and want to “crystallise” 0 value tokens (i.e. get rid of your s**t coins) then HMRC still needs be informed.

If you lose your private keys or have your crypto stolen this won’t count as “disposing” so you won’t get taxed (but you’ve lost your crypto, nooooo)!

Income Tax

If you’re an employee and getting paid in crypto then you will need to contribute Income Tax and National Insurance too – full information about all important considerations here. HMRC also consider trading, mining, transaction confirmation payments and airdrops as income tax if it meets certain criteria.

Still with me or shall we have a coffee break?

Potential Tax Changes Due To Covid

There has been a colossal amount of money being spent to help prop up the economy, which comes at a huge cost – the debt is now at £2 trillion (£2,000,000,000,000)! No prizes for guessing how the government intends on paying back these debts – taxes!

I have seen a couple of articles this week about recommendations made to the Government from the Office of Tax Simplification to change how Capital Gains Tax should be collected to help pay back this debt. The recommendations are to reduce the tax free allowance for Capital Gains down from £12,300 to between £2000-£4000 and increase tax rates across the board, according to Sky News and the Guardian.

We’ll see how that pans out but it’s worth keeping this news on your radar as if they do roll out these changes, it may give us a scare when we do our tax calculations!

Keeping Track Of It All

The take home message is to use a portfolio tracker like Blockfolio as this logs almost all the information that HMRC requires:

  • Which crypto?
  • Date of transaction
  • Bought or sold?
  • Number/Amount of units/crypto
  • Value of the transaction in pound sterling
  • Cumulative total of the investment units held
  • Bank statements and wallet addresses, if needed for an enquiry or review

I know, there’s a lot to take in to begin with but needs must!

Conclusion/TL:DR

  • Be aware of tax implications and policy changes,
  • Check if you need to pay Capital Gains tax when you dispose of crypto and gains are over the threshold
  • Download and use Blockfolio for every transaction you make
  • Keep reading and researching!

How aware were you of Tax and Crypto? Do you think we’ll see those changes take effect with the reduction in Capital Gains threshold and tax rate increases? Will this change the way you approach cryptocurrency in future? Let me know in the comments below!

Take care

Nicky

Disclaimer: This article should not be taken as, and is not intended to provide any investment advice. It is for educational and entertainment purposes only. As of the time posting, the writers may or may not have holdings in some of the coins or tokens they cover. Please conduct your own thorough research before investing in any cryptocurrency, as all investments contain risk. All opinions expressed in these articles are my own and are in no way a reflection of the opinions of The Bitcoin Manual

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