Yes, Bitcoin, Ethereum, and other cryptos or digital currencies are taxable. The IRS (Internal Revenue Services) deems the possession of cryptocurrency to be subject to tax purposes. Your virtual or digital currencies are taxed identically as any other assets you own (stocks, gold, etc.).
An episode of the coinpass Podcast with host Jeff Hancock, Co-Founder, and CEO of coinpass.com and guests Ben Lee of PKF Francis Clark and Dan Howitt of recap.io talk about the crypto tax in 2022 and 2023.
The following are the topics discussed during the Podcast episode:
- From 2018 until now, how has crypto tax in The UK been approached?
- What positive developments have there been in crypto tax in the past 12 months?
- What is the HMRC's indication on handling crypto tax for the 2022/2023 tax year?
- Should The UK crypto tax be feared or just a deeper topic to learn?
- What about DeFi and Staking?
- Do people understand capital gains leverage their tax-free gains?
- What other strategies can investors employ to be tax optimal in The UK?
- Receiving crypto as payment (stable coins), what is the impact?
Dan from recap.io, about the “crypto tax approach in The UK”...
“I've been, kind of been, around in crypto since 2013 and the first kind of iteration of the tax guidance that came out from HMRC was in 2014. And that's when they had a statement and said that cryptocurrency could be so highly speculative that it could be considered gambling. I can remember, in 2017, I'd done a little bit of trading. I was trying to work out what tax to pay and the telegraph would pick this up. We're basically like you don't need to pay tax on your crypto, it's gambling. My counselor was categorically telling me, “No, that is not the case”. And since then, we've seen that the guidance adapts. And in 2018, there was a full suite of crypto-asset guidance released from HMRC that basically clarified that crypto-assets, our capital assets. I think it's important to say that almost every western jurisdiction treats crypto-assets or cryptocurrency as a capital-asset. Since then, we've seen more updates to the guidance and some commentary on staking, and that was updated in 2021 and 2022. We've just had some clarification on how they're approaching DeFi particularly DeFi loans.”
Ben from PFK Francis Clark, about “HMRC's indication on handling crypto tax”...
“It's really interesting because obviously, a couple of weeks ago we had the news that the government was really behind crypto. They want The UK to be this place that crypto can thrive and one of the things that was actually cited in the statement by John Glenn was actually a review of the DeFi lines that we just received in in February of this year. One of the things that we can probably expect to see from HMRC is a call for evidence at some point this year and that will be a set number of questions that will go out for anyone to respond to sort of, go like, these are our thoughts on. The way that it's currently applied perhaps the tax rates and various other questions that they want to ask from the public to then report back to ministers. The concern is that actually not many people respond or find the current guidance or the way we go about taxing is too complicated to really feel comfortable responding and in which case if there's a lack of responses there, then ultimately, legislation won't change but I think the fact that we've got that engagement there and there's going to be a piece where actually people can provide their opinions, provide feedback on that. I think it is really positive in the in the next year.”
For Jeff about everyone who is part of the space...
"It would interest you (Ben and Dan). I mean because everyone's got a part of the space. I'm a buy-and-hold investor. I'm not a trader. I can do it, I can read a chart, I just don't prefer to. So, for me, whether it's tax optimal or not, at the moment, it's definitely, well I'm in dollar-cost averaging. I buy the same amount every single month, every single week, and I'm plotting that off for a very long period into the future. Does that open up a very large taxable gain in the future? Yes, it does but that's also assuming that I dispose of it all at the same time, which I probably won't be. So, part of my long-term tax plan is to wait for the market to evolve even more. Wait for some of the tax regimes to evolve even more and then, basically, see what happens and fits within those kinds of guidelines. And now is that going to hurt me on a yearly basis? Well, it kind of depends but that's going to be my longer-term strategy stacking up my Bitcoin, waiting for some of these more collateralized platforms to come out, and then, maybe, I'm not actually selling my crypt, I'm getting loans against them to fund any other asset acquisitions. I might do any other lifestyle living. So, I'm kind of waiting for the market to catch up to what crypto can really offer.”
Cryptocurrency is a virtual or digital currency that uses cryptography to check and ensure digitally registered transactions on an allocated ledger, such as a Blockchain. As with any disruptive technology like cryptocurrency, its laws are developing. But one point that has stood sure since at least 2014 is that crypto-profits are taxable.
Available on Podcast.
Ben Lee of PKF Francis Clark
Dan Howitt of recap.io
Jeff Hancock of coinpass.com