Do You Have To Pay Tax On Cryptocurrency In The UK?

Can the people in the crypto space, especially in The United Kingdom, avoid paying taxes while buying, selling, and trading cryptocurrencies?

2021 Survey by Finder, 19% of the British population have bought cryptocurrency before, equating to about 9.8 million people. In early 2018, only 3% of the same population had bought into crypto. Whether you are a newcomer to cryptocurrency or you are a veteran of sorts, we are sure you have been wondering how your profits will affect when tax season arrives.

Below we will detail The United Kingdom’s tax laws on cryptocurrency. So whether you are buying into Bitcoin (BTC), Ethereum (ETH), or any other cryptocurrency, you will be sure you are following the rules.

Taxation In The United Kingdom: A Recap

In our article about whether Bitcoin is taxed in The UK, we made some points that remain relevant:
  • According to Her Majesty’s Revenue and Customs (the HMRC), one must fill out tax on all Capital Gains and profits on assets.
  • The HMRC considers crypto to be a digital asset.  As such, when you make a profit through selling it, you must pay a tax on it.
  • All citizens receive a £12,300.00 tax-free allowance. You do not pay tax on cryptocurrency profits under this amount.
  • In general, you must pay tax when a taxable event or “disposal” activity occurs. For example, you sell your Bitcoin for fiat currency or swap it for different crypto on an exchange.

These points can be considered as foundational guidance for paying taxes on all cryptocurrencies.

The UK Gets Serious With Crypto Taxes

Towards the end of 2020, the HMRC came to an agreement with Coinbase and agreed that Coinbase would provide the HMRC with information regarding the accounts of users who own above 5,000.00 pounds of digital assets.

Thereafter, in March 2021, the HMRC released updated guidelines on crypto taxes. These updates show that evading crypto taxes is likely not to be taken lightly.

HMRC Regulations

Apart from the bullet points mentioned previously, here is what else you need to know about cryptocurrency taxation when it comes to buying, selling, trading, and earning crypto.

The variation of tax you pay on crypto depends on the manner in which you use the crypto asset. If you are sitting on crypto as a personal investment, you will be subject to Capital Gains Tax. However, if trading crypto is a business for you, then you will need to pay Income Tax. Further, if you get crypto as a wage or salary, you must pay Income Tax.

Mining

Receiving coins from crypto mining on a casual level is considered miscellaneous income and must be reported as such. You will pay Capital Gains Tax, should you part with these coins at a later stage.

As a business miner, the rules change. When you gain crypto through mining, it counts as income. For mining income below £1,000.00, no tax needs to be paid. However, if you make more than that, you must report it and be subject to Income Tax. So if you make £1,500.00, then you will pay Income Tax on only £500.00.  

Forks

If your chosen crypto-asset reaches a hard fork and you gain a new, different set of coins as a result, then the value of the new coin is based on the original coins you already had. From here, you need to treat each as two different assets, and you will be subject to the rules on Capital Gains.

Gifting

Giving your husband or wife a gift incurs no tax. However, gifting your spouse crypto will increase your tax-free allowance.

Consider this scenario that you own £30,000.00 worth of crypto and gifted your husband half of it. Well, that means it had  £15,000.00 worth. Thereafter, you both sold all your investments. Each of you sold for £25,000.00. As a result, each of you made £10,000.00 and had no tax to pay. If you had done this alone, you would have made £20,000.00 independently and would be subject to tax on this amount.

Losses

If the crypto you bought loses all its value, you can claim a tax loss.

Reporting Your Crypto Assets

You can report your crypto gains via self-assessment. After you have sent this through, the HMRC will detail the payment method. Important to remember is that the HMRC stipulates that you must thoroughly record your crypto transactions. Your tax bracket will be a determining factor in the amount of tax you pay in the end.

Final Thoughts

It is 100% necessary to pay taxes on crypto. However, there are certain rules you can take advantage of to ensure that you avoid paying a lot of taxes.   You should keep in mind to have a record of your gains and losses for when tax season arrives! Penalties are severe for those who are evading tax. And remember, if you are not in The UK, the rules will be different in your jurisdiction.