Crypto Taxes in the United Kingdom

If you’ve earned more than the annual allowance in total chargeable gains, including gains on cryptoassets, then you may have to pay capital gains tax. When the transaction fee is in crypto, it should be valued at FMV and would generally result in a capital gain/loss separately as it would be deemed a disposition of capital property. Therefore, in taxable events, your transaction may result in 2 separate reportable capital gains/losses, each of which should be separately listed in your transaction records. For prudent financial planning, it is recommended to submit an income tax return even if the capital gains amount doesn’t necessitate it. This proactive approach enables individuals to carry forward losses, creating a valuable asset for offsetting against potential future gains.

If you receive tokens from mining and are not trading, the tokens will be treated as other taxable income. Any cryptoasset exchange tokens (known as cryptocurrency) you receive from employment or mining count as income. 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. Pooling practices applied to shares and securities also apply to crypto. The averages of the sums paid initially for that coin create the average cost basis, which fluctuates as more of that token is acquired or disposed of.

How is my cryptocurrency taxed?

In these cases, you must retain your records for at least 15 months after the submission of your tax return. For tax returns submitted on or before the due date, you must retain your records for a minimum of 22 months following the end of the tax year for which the tax return was filed. Employers are required to report this through the Pay As You Earn (PAYE) system, and they are responsible for deducting the necessary taxes before the cryptocurrency is handed over to the employee.

Under this rule, if an investor buys and sells the same cryptocurrency on the same day, the cost basis used to calculate gains or losses is based on the value of the assets on that specific day. If the quantity sold exceeds the quantity bought on the same day, the investor must proceed to the next rule. HMRC mandates the use of share pooling as the crypto cost basis method.

Understand HMRC's rules about tax due on crypto and find out how to work out your tax easily.

To potentially pay less tax in January 2023, you must make your move before the end of the fiscal year, which is April 5, 2022. Calculating your crypto taxes and reporting them to HMRC takes time, especially if you trade in large quantities. The UK fiscal year runs from April 6th to April 5th of the following year.

Each category has specific tax implications that individuals need to be aware of. The declaration will ask users to identify themselves as either high net worth individuals or restricted investors, based on specific criteria. Each individual is responsible for calculating and reporting income on their individual tax return even if the payor (e.g., employer) has not supplied appropriate documentation. It is your responsibility to consult a tax professional to ensure you have fulfilled your tax obligations.

Do I pay tax when spending crypto?

It’s important to note that capital gains tax is only payable on the actual gain made, not the total amount received. This means that if you sell your cryptocurrency for a higher amount than what you initially paid, Crypto Taxes in the United Kingdom you will only be taxed on the profit you made. Yes, in the UK you are required to pay taxes on certain crypto transactions. If you make profits from selling cryptoassets, you may need to pay Capital Gains Tax.

Crypto Taxes in the United Kingdom

As a user of cryptocurrency exchanges in the UK, it is imperative to be aware of these data-sharing practices. The information you provide to exchanges is not isolated, and HMRC may access it in their efforts to ensure tax compliance. As such, ensuring accurate reporting of cryptocurrency transactions and holdings is vital to fulfilling your tax obligations in the UK. 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.

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. It is essential to keep records of all crypto-to-crypto transactions, including the date, value, and purpose of the transaction, to ensure accurate reporting and calculation of tax liability. Income from cryptocurrencies is calculated by identifying the fair market value of the coins or tokens on the day and time they were received, converted into GBP. In the UK, tax exemptions refer to specific amounts or types of income that are not subject to taxation.

Crypto Taxes in the United Kingdom

Do keep in mind, though, that you cannot deduct costs you’ve already deducted against profits for Income Tax or costs of mining activities, such as equipment or electricity​​. Furthermore, if you earn cryptoassets, for instance through mining or as payment for services, this may be subject to Income Tax. In the United Kingdom, Inheritance Tax is applicable to the estate of a deceased individual, including their cryptocurrency holdings. Cryptocurrencies are considered assets and are subject to Inheritance Tax if the total value of the estate exceeds the threshold of £325,000. We will write to you to let you know if we have accepted your disclosure, meaning the amount you have paid has cleared any unpaid tax you owed.

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