A Guide To Tax On Cryptocurrency In The UK

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Bitcoin has become one of the most talked-about and also most profitable investments, seemingly overnight. And no wonder.

According to a recent study comparing profits from Bitcoin and real estate, those who invested in Bitcoin a few years ago could have been much richer today, and in a much better position financially compared to those who invested in real estate. 

Bitcoin alone stands for $6 billion in online transactions per day. To use this increasingly popular currency and buy goods using cryptocurrency in the UK, you need to understand how the UK government taxes it.

Read on to gain a complete understanding of your tax obligations when using and trading in cryptocurrency in the UK.

Is Cryptocurrency Taxed In The UK?

Yes, cryptocurrency is taxed in the UK. Rather than defining crypto assets as currency, the UK government HMRC defines them as property. This means that HMRC taxes cryptocurrencies in the form of Income Tax or Capital Gains Tax. Paying tax on your cryptocurrency exchanges is essential, and you must understand what is required of you to avoid any tax infringements which could lead to criminal charges.

This being said, crypto is tax-free when it is a gift from a spouse, when you transfer it between wallets that belong to you, and when you buy crypto with fiat currency. 

When Is Cryptocurrency Taxed As Income?

HMRC will tax your cryptocurrency as income in the following situations:

1. If someone pays you in cryptocurrency.
2. If you are mining cryptocurrency.
3. If you are staking cryptocurrency.
4. If you are receiving cryptocurrency airdrops.

When you are mining, staking, or receiving airdrops of crypto, you must pay income tax on them, as the profits from these processes is registered as miscellaneous income.

When Is Cryptocurrency Taxed As Capital Gains?

When cryptocurrency is swapped, sold, or spent in the UK, it is subject to capital gains tax as this is seen as the disposal of income.

Disposal of assets is taxed when there is a perceived profit from it; for instance, there is a perceived profit in these situations:

1. When crypto is gifted to someone other than your spouse.
2. When you use crypto to make a purchase.
3. When you make a profit from swapping crypto with crypto.
4. When you sell crypto for fiat currency (e.g., GBP).

There is no difference in how much you pay for long and short-term gains, as the tax rate for crypto remains the same no matter how long it has been in your possession.

You also don’t need to worry about paying capital gains tax on the money you make from swapping, selling, or spending crypto, as long as it is less than £12,300. This is the annual exempt amount offered to each individual as a tax-free allowance.

Calculating Your Income Tax

You will only be taxed on your income from cryptocurrency in the UK if it exceeds £12,570, and upwards of this, you will pay 20% on your salary if it is under £50K. If you make between £50K and £150K, you will be taxed 40%, and if your salary exceeds this amount, you will pay 45% tax.

Once you have identified your tax band and what percentage you will have to pay in income tax, identify all of your crypto assets that would be considered income by HMRC, and calculate their fair market value in pounds on the day you received them.

Then, add up these values and add this value to your regular income. Multiply your total income by the tax rate bracket it falls into.

Calculating Your Capital Gains Tax

Your capital gains tax will be 10% if you fall into the basic income band (up to £50270) and 20% if you fall into the higher rate income band (up to £150K) or the additional income band (over £150K).

Work out your total taxable gains from crypto investments. Then, subtract your tax-free allowance (£12300) from this amount and add the remaining amount to your taxable income to determine which tax band you fall into.

You could claim capital losses within four years of the end of the tax year in which you realized the loss if you made a loss on your investment.

Filing Crypto Taxes

In the UK, the deadline for filing your taxes is 31st January. This is when you should submit your self-assessment tax return and claim your capital gains and income from crypto, and pay your tax amount to the HMRC.

Nudge Letters

In November 2021 HMRC started sending nudge letters to UK citizens to encourage them to declare their income from crypto investments and ensure they pay any tax due before the deadline in January.

Help For Calculating Your Crypto Tax

If you need help calculating your crypto asset taxes before the January deadline, hire a tax accountant to work out your crypto activity by providing your crypto to GBP conversions, and transaction history so that they can work out your self-assessment tax report and file it for you, telling you how much you owe.

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• Second round of QUASA AIO crypto-crowdfunding + Quasacoin token (QUA) on Kickex!

Summary

Filing your crypto taxes in the UK is a fairly straightforward affair, so long as you’re aware of the requirements.

You need to keep track of your crypto transactions in the UK and keep an accurate log of the fair market value for your cryptocurrency on the day the transaction occurred to help you in the process of filing your crypto taxes. 

Don’t forget to pay your taxes for your UK crypto earnings before the 31st of January, as tax evasion results in criminal charges. The UK government has a data-sharing program with all UK exchanges and will know about your crypto assets.

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