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Cryptocurrency taxation in the UK – are crypto gains taxable?

Since the launch of the so-called “Genesis Block “of Bitcoin in January 2009, cryptocurrencies have become an accepted currency in many countries the world over, including the UK. If you are considering investing in one, you ought to know about crypto tax UK law.

Cryptocurrency taxation in the UK – Summary Table

💸 Are cryptocurrencies taxable?No, just as there are no taxes on other specific currencies.
🤑 So, are they tax-free?No, they are not: you must pay tax on any gains made on cryptocurrency funded investments
🏆 3 most popular cryptocurrenciesBitcoin (BTC) – £615 billion
Ethereum (ETH) – £264 billion
Tether (USDT) – £51 billion
❤️ Should you pay taxes on crypto donations?If you donate crypto assets to a charity, their value does not have to be taken into consideration as far as Capital Gains Tax is concerned

When it first became available, Bitcoin had little or no intrinsic value. After about six months, one Bitcoin (BTC) was valued at approximately £0.10. Today, the value of 1 BTC has soared to £36,734.59. People who invested in those early stages would be very wealthy today, but how would crypto tax UK law affect that wealth?

Are Crypto Tax UK Transactions Taxable?

The first thing to acknowledge is that there are no taxes that are applied specifically to any cryptocurrencies here in the UK, in the same way that taxes do not apply to any particular currency per se, including the British Pound, the US Dollar, or the European Euro.

However, a tax on cryptocurrency will be applicable in certain circumstances. You can get more detailed information from the Cryptoassets Manual, published by HMRC.

What is clear is that you must pay tax on cryptocurrency in respect of any gains that are made on cryptocurrency funded investments. So, if you have a crypto portfolio, something which is becoming more and more popular; in the same way as with a shares portfolio that makes gains, paying taxes on crypto funded gains will also be necessary.

The 11 Crypto Tax-Free Countries

Although Capital Gains Tax UK crypto law applies here in the UK, there are 11 countries where they do not. They are Belarus, Bermuda, El Salvador, Germany, Hong Kong, Malaysia, Malta, Portugal, Singapore, Slovenia, and Switzerland.

The Most Popular Cryptocurrencies

Bitcoin was the first cryptocurrency to become commercially available, and it is probably the best know. There are many others, however, some of which have made big gains in 2021. Here is a list of the Top 10 most profitable cryptos in descending order:

  • Bitcoin (BTC) – £615 billion
  • Ethereum (ETH) – £264 billion
  • Tether (USDT) – £51 billion
  • Cardano (ADA) – £50 billion
  • Binance Coin (BNB) – £48 billion
  • XRP (XRP) – £33 billion
  • Solana (SOL) – £30 billion
  • USD Coin (USDC) – £23 billion
  • Polkadot (DOT) – £21 billion
  • Dogecoin (DOGE) – £19 billion

As you can see, Bitcoin is the most profitable by far because it is more widely traded.

What Happens When You Swap One Crypto Brand for Another

Here in the UK, HMRC see any cryptocurrency as being potentially liable for either Capital Gains or Income Tax depending on the precise nature of the investment. But is crypto taxable when you trade one crypto currency for another?

HMRC takes the stance that a cryptocurrency is not a real currency.  Rather, it regards it as a property – as a capital asset, similar to a property or a share. So, do you pay tax on crypto gains? Yes, you do – as with the disposal of any capital asset (and this includes trading in one crypto brand for another), you are liable to pay Capital Gains Tax.

How Capital Gains Tax Works

Some countries split Capital Gains into two categories – long term and short term, but not the UK. Here, all capital gains are treated the same, under the same rate. The amount Capital Gains Tax Cryptocurrency UK holders have to pay is dependent on how much you earn.

Taxable Income BracketRate of CTG (Capital Gains Tax)
Basic rate – up to £50,27010%
Higher rate – up to £150,00020%
Additional rate – more than £150,00020%

Remember that Capital Gains Tax only comes into the frame when you dispose of an asset. Whether you are buying another asset (a different type of cryptocurrency, share, property of whatever), or not is irrelevant. It is at that point you need to worry about CGT.

You calculate CGT by comparing the price and which you bought the asset to the price at which you dispose of it. The cost should also include any transaction fees. Subtract the value at which you bought the asset from the value at disposal, and the difference is the gain upon which you will have to calculate how much CGT you are liable for.

If the figure is negative – i.e., you have made a loss; make a note of it as it can be used to reduce your tax bill in future.

Taxes on Crypto, Tax Breaks and Losses

When calculating paying taxes on crypto, don’t forget to take your Capital Gains Tax-Free Allowance into account. Here in the UK, your annual allowance is £12,300, so you only have to pay CGT if your gains are in excess of this sum.

Also, as mentioned above, if you have made any losses on crypto transactions, you can offset them against any gains.

Even better news is the fact that you can carry these losses forward for up to four years. So, when you ask yourself, do I need to pay tax on cryptocurrency UK disposals, the answer is only if the gain is higher than £12,300 after offsetting any losses you made.

Must You Pay Taxes on Cryptocurrency that is Lost or Stolen?

HMRC takes a helpful view on crypto assets that have been lost or stolen. Although if you have lost your private key, you cannot claim a capital loss, you can make a negligible value claim. If your claim is accepted, you will, at a later stage, be able to claim it as a capital loss.

Tax on Crypto Currency UK Income

Crypto is not only accountable from the point of view of Capital Gains Taxation, it may also trigger a need for income tax.

If you are given payment via crypto in return for services rendered, the payment could be subject to income tax if the total amount takes your earnings above the personal income tax threshold, which currently stands at £12,750. If you run your own business, any crypto income should be dealt with as being part of your trading profits.

How to Handle Crypto Tax UK Airdrops

If you’re the recipient of an airdrop of unknown tokens from an exchange wallet such as Binance or Ethereum, as part of an advertising or marketing campaign, providing it doesn’t originate from a company involved in mining, it is not part of a trade, and you are not expected to carry out any services in return, it will not be liable for income tax.

Hard and Soft Forks and Crypto Tax UK Treatment

There is also something known as hard and soft forks in the cryptocurrency world. These are a little complex, and it is not within the remit of this article to explain them fully. However, they are treated differently in terms of taxation, with soft forks not being tax liable.

You’ll find this article on the help.recap.io website helpful.

Must You Pay Taxes on Crypto Donations?

HMRC smiles kindly in charitable donations. If you donate crypo assets to a charity, their value does not have to be taken into consideration as far as Capital Gains Tax is concerned, providing the size of the donation isn’t greater than its cost at acquisition.

How to Pay Tax on Cryptocurrency UK – Which Forms to Use

If you have made gains on crypto-assets over £12,300 in any one tax year, you must declare them to HMRC. Don’t try and avoid it.

A couple of years ago, HMRC confirmed that they are working with various crypto exchanges, sharing information from their “Know Your Customer” records. They use this information to send out reminder letters to investors to prompt them on their obligations and to track down anyone they suspect of failing to complete the necessary returns.

To make a report for tax on cryptocurrency UK purposes, you should use the SA100 self-assessment form and the SA108 Capital Gains Summary form. The deadline for paper tax returns for the current tax year has already been passed, but you still have a little time remaining to complete an online return which must be filed by the 31st of January 2022.

If you fail to report any liability for tax on cryptocurrency gains, you could be liable for prosecution.

Using Crypto Tax UK Reporting Software

If you are compiling your own tax on cryptocurrency UK return, you can do so with the help of specially designed software. The best of these programs, some of which have a free starting price or can be bought for as little as £7.50 per month, can be found on the sourceforge.net website. They can reduce your workload down to just a few minutes, even when you are operating several accounts.

These software packages work with all of the major exchanges and platforms, including the likes of Binance, Coinbase, Koinly, Kraken, etc.

Answering All Your Question of Cryptocurrency Taxation

If you are one of the crypto taxable UK brigade, we hope this article has helped to lighten your darkness. If you have any other questions or concerns, you should download a copy of HMRC’s Cryptoassets Manual or have a chat with a specialist wealth management company.

FAQ

Do you have to pay tax on crypto in the UK?

Yes, depending on your cryptocurrency transaction, you may be subject to Capital Gains Tax or Income Tax.

How much tax do you pay on crypto in the UK?

The amount of tax you will pay depends on your income tax band. For Income Tax, the basic rate is 20%, the higher rate is 40%, and the additional rate is 45%. For Capital Gains Tax, the basic rate is 10%, the higher rate is 20%, and the additional rate is 20%.

How do I avoid crypto tax in the UK?

There are 3 ways to avoid crypto tax in the UK. They include using your £12,300 Capital Gains Tax-Free Allowance, £12,570 Personal Income Tax Allowance, and £1,000 Trading and Property Allowance.