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How is cryptocurrency taxed in the UK?

Cryptocurrency is a rapidly growing area of interest for traders, investors and industry regulators. Its popularity has attracted the attention of HMRC who are updating their guidance to ensure investors pay the correct amount of tax.

If you're interested in investing in crypto, or already hold some form of cryptoasset, it is important that your assets are held in a tax efficient manner. Our specialist tax advisors are on hand to discuss how we can best assist you based on your individual circumstances and needs.

Cryptocurrency tax in the UK explained

Crypto assets aren't considered as money or currency by key financial institutions, HMRC included. From a tax perspective, crypto assets are treated like shares and are taxed accordingly.

HMRC has broken them down into three distinct types of assets in their Cryptoassets Taskforce report:

Exchange tokens – often referred to as ‘cryptocurrencies’ such as Bitcoin or other equivalents.

Security tokens – amounting to a ‘specified investment’ as set out in the Financial Services and Markets Act (2000). These could provide rights such as ownership, repayment of a specific sum of money, or entitlement to a share in future profits.

Utility tokens – which are able to be redeemed for access to a specific product or service that is typically provided using a DLT platform.

How you are taxed on cryptocurrency will depend on how you are using the tokens. As cryptocurrency is a relatively new area, the tax treatment of such tokens is tackled by HMRC on a case-by-case basis. HMRC will look at your individual case when determining any taxable liability, but it is likely these views may change as this ever-growing sector continues to evolve. You can read more about this on our cryptocurrency tax page.

Who is liable for cryptoasset tax in the UK?

Essentially, anyone who is domiciled in the UK is liable to pay tax on cryptoassets. UK Businesses are also liable to pay tax on cryptoassets. If a resident is domiciled in the UK, then it is deemed by HMRC that any cryptoassets they hold are also located in the UK and therefore liable for UK tax.

There are several activities associated with cryptocurrency that you will be taxed on:

  • If you’ve sold your crypto for more than you bought it, you must pay capital gains tax on the profit.

  • If you lost money through trading, those losses could minimise your capital gains tax bill. Swapping cryptocurrencies will also trigger a capital gains taxable event, because you will be selling crypto to other investors or liquidity pools.

  • If you’re trading huge amounts of crypto HMRC will think you are a trader and ask you to pay income tax on trading, rather than capital gains taxes.

  • Regardless of the cryptocurrency you're paid in, or who pays you, you'll have to pay income tax and NI contributions

What taxes might I need to pay?

You are likely to be liable to pay Capital Gains Tax, when any cryptocurrency is traded, disposed of or exchanged. You may also be liable to pay Capital Gains Tax when you use cryptocurrency to pay for goods or services or where these are given away to another person (other than a spouse).

Income Tax and National Insurance contributions are also payable in circumstances where cryptoassets have been received as a salary, through mining or through Airdrops in return for a service, or expected service. Inheritance Tax may also be due upon death.

If you’re a higher or additional rate taxpayer, your cryptoassets will be taxed at the current Capital Gains Tax rate of 20%. Basic rate taxpayers will be taxed differently depending on their taxable income.

For businesses involved in cryptocurrency transactions, the rules around taxation are much more complex. Businesses may also be liable for VAT depending upon the type of transaction.

Cryptocurrency tax advice

To fully understand how cryptocurrency is taxed in the UK, and how you can stay compliant in this rapidly evolving sector, our cryptocurrency tax advisors are here to help.

Our specialist tax managers at PKPI.UK are experienced in dealing with the tax issues surrounding cryptocurrency and cryptoassets. Whether you’re an investor, trader or a business, we can help you ensure your affairs are structured correctly, in the most tax-efficient way, while remaining compliant with the latest HMRC cryptocurrency legislation.

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