Here at Harvex, we are asked multiple cryptocurrency tax questions on a daily basis from UK tax residents. Rather than you trawling through pages of online content, we have summarised the main questions and answers here…
If you have more questions, fell free to contact us.
Do you have to pay taxes on Cryptocurrency?
Cryptocurrency profits/gains are taxable in the UK, losses are usually available for some form of write off.
The method and amount of which you are taxed depends on your personal circumstances. Traders are taxed between 20% and 45%, Investors are taxed between 10% and 20%.
There are also tax-free allowances available which currently stand at £11,850 for traders (personal allowance) and £11,700 for investors (capital gains tax allowance). These allowances can only be used once across cryptocurrency and non-cryptocurrency profits.
Should I pay taxes on Cryptocurrency?
In some cases you would not need to pay tax on your cryptocurrency, but if you do it will need to be declared on your cryptocurrency self-assessment.
There is a phrase ‘hodl’, which was coined a few years ago to describe somebody who buys cryptocurrency and never sells – they hang on to their cryptocurrency through all the volatile price increases and decreases.
If you are one of these people, who bought, but never traded, never sold, then you are one of those who should not need to pay taxes.
How to not pay tax on Cryptocurrency UK?
There is one simple option available to cryptocurrency investors to not pay tax.
This comes from utilising the capital gains tax free allowance, which is £11,700 for the 2018/19 tax year. In essence, if you make a gain of less then £11,700 (and you are classed as an investor) then you do not have any tax to pay.
This is not the total sale price, it is the profit on your investment that counts. Also, this tax free allowance is for all investment gains – if you’ve sold shares a gain, this will eat into the £11,700.
Some well planned sales of your crypto-assets can allow you to have a £nil tax bill.
Do you pay tax on Cryptocurrency trading?
Yes. Cryptocurrency trading is viewed by HMRC in the same way as 'normal' trading income and you would be taxed accordingly. The important aspect to consider if whether you actually count as a trader in the eyes of HMRC.
To determine this, you can look at the Badges of Trade. Is cryptocurrency your main source of income? What is the volume of trades and frequency? Do you have prior experience in financial trading?
If you count as a trader and make a profit above the tax free allowance, you’ll have a tax payment due. You will also likely need a cryptocurrency bank account to enable profits to be received in cash.
Do you have to pay taxes on Cryptocurrency gains?
Any assets sold for a gain above £11,700 (for the 2018/19 tax year) are taxable. Gains are the sale price less the purchase price.
In tax terms, ‘gains’ relate to investment disposals and not trading profit. However, for those who have traded cryptocurrency at a gain, you’ll likely to have a tax charge on your profits.
How to pay taxes on Cryptocurrency?
Taxes are paid via the same means as a non-cryptocurrency related tax. This is:
1) Via HMRC’s self assessment tax return, which is completed yearly on an individual level.
2) Via a Corporation tax return, which is completed for Limited Companies.
How to report Cryptocurrency on taxes?
Taxes are reported via the same means as a non-cryptocurrency related income. You can add the cost of the cryptocurrency to your tax return as follows:
- A Trader – expenditure and income, to give you your trading profit or loss.
- An Investor – a cost and disposal, to give your gain or loss on the crypto-assets.
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