At a glance

HMRC has confirmed in its Cryptoassets manual that:

  • Most individual investors will be subject to Capital Gains Tax (CGT) on gains and losses on cryptoassets.
  • Section 104 pooling applies, subject to the 30-day rule for ‘bed and breakfasting’ with different rules for companies.
  • It will be rare for investing in cryptoassets to be trading, though ‘mining’ is likely to indicate a trading activity.
  • A capital loss may be claimed in the event that a cryptoasset becomes of negligible value. 
  • Exchange tokens such as Bitcoin are located for tax purposes wherever the beneficial owner is resident.  
  • VAT may need to be considered.
  • HMRC does not consider cryptoassets to be currency or money.

Overview and examples

What is a cryptoasset or cryptocurrency?

There many different types of cryptoassets. ‘Cryptocurrencies ‘ such as Bitcoin (BTC) are just one variation. 

A cryptocurrency is a type of cryptoasset which shares many similarities with other currencies.

  • You have fluctuating exchange rates that are driven by the market.
  • You can buy and sell it in exchange for other cryptocurrencies or for fiat currencies e.g. pounds, euros or dollars.
  • Most cryptocurrencies use blockchain technology and some are built around different platforms.

How to tax profits or gains made on cryptocurrency: individuals

  • Whether your profits are taxed as income or capital gains depends on whether you are trading or investing.
  • Generally, disposal proceeds are taxed as capital gains unless there is evidence of trading.

How much income tax will you pay?

Your crypto tax rate for ‘earned’ crypto depends on the income tax band you fall into. Your crypto income tax rate will be the same as the highest tax band you fall into, and is considered miscellaneous income. You’ll pay anywhere between 0% to 45% in tax.

BandTaxable incomeTax rate
Personal allowanceUp to £12,5700%
Basic rate£12,571 – £50,27020%
Higher rate£50,271 – £150,00040%
Additional rate£150,000+45%

How to calculate your in crypto income tax

It’s easy to work out how much you owe in crypto income. Follow these steps:

  • Identify your Income Tax Band.
  • Identify any crypto assets considered to be income by the HMRC.
  • Calculate the Fair Market Value (FMV)  of these assets in GBP on the day you received them. Koinly’s crypto tax calculator does this for you.
  • Add up the total value additional income from crypto.
  • Add your additional income to your regular income.
  • Refer to your Income Tax Band  and multiply your total income by your tax rate.

When is crypto taxed as a capital gain in the UK?

Because crypto is viewed as an asset in the UK, when you sell, swap or spend it, this is seen as a disposal of an asset and subject to Capital Gains Tax.

Not all of your disposed assets are subject to Capital Gains Tax, only the perceived profit from disposing of it. For example:

  • Profits from selling crypto for fiat currency, for example GBP.
  • Profits from swapping crypto with crypto.
  • Perceived profits made from gifting crypto (excluding to spouse).
  • Using cryptocurrency to purchase goods and services.

Capital gains tax break

Everyone in the UK gets a Capital Gains Tax allowance. It’s also known as the Annual Exempt Amount and it’s no small sum of £12,300 per person, per year. If you have less than £12,300 in crypto gains, you won’t pay any capital gains tax and you don’t need to report this to the HMRC.

How much capital gains tax will you pay?

The amount of Capital Gains Tax you’ll pay on your crypto gains depends on your regular income and the Income Tax Band you fall into.

Capital Gains Tax RateIncome Tax Band
10%Basic Rate Income Band (up to £50,270)
20%Higher Rate Income Band (up to £150,000)
20%Additional Rate Income Band (more than £150,000)

How to calculate your in crypto capital gains tax

It’s easy to work out your crypto tax rate for capital gains. Just follow these steps:

  1. Identify your Income Tax Band.
  2. Work out your total taxable gains from crypto investments
  3. Subtract your Capital Gains Tax Allowance (£12,300) from your total taxable gains.
  4. Add the remaining amount to your taxable income.
  5. If this is within the basic income tax band, you’ll pay 10% on your capital gains from crypto. If this is in the higher rate or additional rate tax band, you’ll pay 20% on your capital gains from crypto.

Made a loss? You can report losses on a chargeable asset to HMRC to reduce your total taxable gains. The time limit for claiming capital losses is within four years of the end of the tax year in which the capital loss was realised.

When to file UK crypto taxes

The UK tax deadline is the 31st of January 2022. You need to report any income from crypto or capital gains from crypto in your self assessment tax return by this date.

Ideally, you’ll want to submit your tax return before this point as you also need to pay any taxes due by midnight on the 31st January 2022.

How to file UK crypto taxes

You’ll need to keep good records of your crypto transactions including the FMV on the day you purchased, the FMV on the day you sold and any subsequent capital profits or losses, as well as any crypto ‘earnings’ perceived as income.

You submit these records to the HMRC, who calculate what you owe based on what you report.

Leave a Reply

Your email address will not be published. Required fields are marked *