How cryptocurrency is taxed in the UK and how UK tax on cryptocurrency can be reduced
Updated 21st September 2022
As accountants specialists in UK and US investments, we have experienced increased demand from both clients and our article readers for more information on UK tax on cryptocurrency.
This article will break down how cryptocurrency is taxed in the U.K and tax planning considerations for cryptocurrency in the future.
We will update this article as the UK tax treatment of cryptocurrency develops.
For an explanation of how cryptocurrency is taxed in the US and how to reduce US tax on cryptocurrency- go to this article
Disclaimer:
Please note: Recommendations and obligations for crypto investors will vary depending on the circumstance. This article offers a general overview of the topic.
We recommend always consulting a certified UK tax adviser for cryptocurrency to ensure your investments are treated in line with UK tax law and for maximum savings against tax.
Skip to different questions in the articly by selecting from the list below
How is cryptocurrency taxed in the UK?
How Capital Gains Tax is applied to Cryptocurrency
What can I deduct when calculating my crypto gain/ losses?
Do you pay tax on all crypto gains?
How to pay capital gains tax on cryptocurrency in the UK?
UK Income Tax on cryptocurrency
What should you know about Paying Employees in crypto-assets
What you should know about Trading (buying and selling) Cryptocurrency?
UK Inheritance Tax on cryptocurrency
Are gifts of cryptocurrency taxable in the UK?
Tailored advice for UK tax on cryptocurrency
What is Cryptrocurrency?
'Cryptocurrency' is a term often used when referring to ‘virtual currencies.
Bitcoin is by far the most popular and well-known cryptocurrency. However, there is a wide range of cryptocurrencies available both to invest in and purchase. Some examples of cryptocurrency include
The value of some types of cryptocurrency has risen at such a rate that ‘bitcoin millionaires’ are becoming a norm. The surge in cryptocurrency income has been followed by an increased interest in how virtual income is taxed in the UK
As with any other currency, there is no specific crypto tax in the UK. Instead, your crypto will be subject to either income tax or capital gains tax.
Whether you pay income tax or capital gains tax will depend on how you're using crypto and the particular transactions you’re making.
The treatment of cryptocurrency in the UK tax system is an evolving area, we will keep this article up to date with all the latest UK cryptocurrency tax changes.
Save this article to your bookmarks so you always have it to hand when handling UK taxes on your cryptocurrency
In the majority of cases, you will hold crypto assets as a personal investment, usually for capital appreciation or to make particular purchases. In these instances, you will be liable to pay Capital Gains Tax when you dispose of the crypto.
A ‘disposal’ is a broad concept and includes:
· Selling crypto for money
· Exchanging crypto for a different type of crypto
· Using crypto to pay for goods or services
· Giving away crypto to another person (unless it’s a gift to your spouse or civil partner)
View the capital gains thresholds
There are certain allowable expenses/deductions that can be claimed when claiming a loss on your cryptocurrency against tax. These include, but are not limited to:
· Transaction fees paid
· Advertising costs for a purchaser
· Professional costs eg. to draw up a contract for acquisition or disposal
· Costs of making a valuation or apportionment to be able to calculate gains or losses
· Exchange fees
Speak to one of our chartered crypto tax accountants for more information on what you can claim
Help on calculating your crypto gain/loss:
This can be complex, however, with a want for providing you with as much information about UK tax on crypto as possible we have included. If any questions come up just drop us an email.
Feel free to skip to “Do you pay tax on all crypto gains?” if you would like to avoid technical jargon.
The gain/loss is equal to the disposal proceeds less the base cost of the cryptocurrency.
The base cost is determined by applying specific ordering rules on a cryptocurrency by cryptocurrency basis to acquisitions:
On the same day.
Within the following 30 days.
From the ‘pool’, which effectively means that gains on disposal are calculated using the average cost of the cryptocurrency.
However, this allowance is not just for cryptocurrency, it includes all capital gains within a tax year eg. gains on shares, securities, property etc.
The rate of tax you will pay for any gain over the allowance will depend on your level of income (10% for basic rate taxpayers and 20% for everyone else).
You report cryptocurrency gains on the Capital Gains Summary (SA108) pages in your annual Self-Assessment tax return.
As cryptocurrency is neither a listed nor unlisted share, information on any capital gains or losses should be detailed in the section ‘Other property, assets and gains’ in boxes 14 to 22.
In some instances, you may want to declare your ‘buying and selling’ crypto transactions even if you didn’t make a taxable gain. Why? If you made a loss by 'buying and selling cryptocurrency, you have two options.
1) Your crypto loss can be offset against capital gains of the same tax year.
2) Your crypto loss can be carried forward indefinitely against gains of future years.
All UK residents are required to declare taxable cryptocurrency gains on their UK tax return. If you’re a US expatriate living in the UK and have declared crypto gains on your US return, you will still be required to report the gain on a UK tax return.
For US expatriated holding cryptocurrency the article “us crypto article*title” may also be helpful
For more information on how to report cryptocurrency gains, book an initial consultation with a member of our team today.
If you fall into any of circumstances below, you are eligible to pay income tax on your crypto assets:
If you receive cryptocurrency as a form of payment then it will be regarded as taxable income, thus you should pay income tax on your crypto assets.
Referral Rewards like Binance Referral
Learn to earn campaigns, like Coinbase Learning Center
Watch to Earn platforms like Odysee
Browse to Earn platforms like Premission.io browser extension
Play to Earn games like Axie Infinity
Shop to Earn through browser extensions like Lolli
Share Public addresses to earn on platforms like Moon Faucet
However, it can be inferred that earning tokens and coins in this manner can be classed in the same bracket as Mining crypto and Staking Rewards which leaves them eligible for taxation.
If you do have to pay income tax on your crypto-assets the earnings will fall into the U.K. income tax brackets for the year that you are filing based on the economic worth at the time.
For complete clarity on whether you owe income tax on any of these earnings, we advise that you speak to a tax professional who is familiar with the taxation of cryptocurrency
Where you are seen to be making an income from crypto, you will pay income tax.
Cryptocurrency received as employment income count as ‘money’s worth’ and are subject to Income Tax and National Insurance contributions on the value of the asset.
Cryptocurrencies are readily convertible assets if trading arrangements exist or are likely to come into existence.
Accordingly, employer and employee, NICs will be payable when employees are paid in exchange tokens. The employer must collect the income tax and NICs due and pay it to HMRC through Pay As You Earn (PAYE). This applies even if an employee does not have a cash salary, in which case the employee must “make good” the tax the employer has paid on their behalf within 90 days of the end of the tax year in which the asset was received, otherwise additional income tax and NICs will apply.
If you retain crypto assets that were subject to income tax on the acquisition, CGT may apply on a future disposal.
Trade in cryptocurrency is very similar in nature to trade in shares, securities and other financial products.
If your crypto activity is considered to be trading then Income tax will take priority over Capital Gains Tax and will apply to profits (or losses).
However, it is only in exceptional circumstances would HMRC expect you to buy and sell crypto with such frequency, level of organisation and sophistication that the activity would constitute a financial trade in itself. It’s often the case that you would describe buying and selling crypto as ‘trades’, however, the use of the term ‘trade’ is not sufficient to be regarded as a financial trade for tax purposes.
For most, the activity will not amount to trading but will be regarded as an investment where Capital Gains Tax will apply.
The HMRC considers cryptocurrency property of the deceased for the purposes of inheritance tax and their value will be calculated at the date of death.
As part of the estate, crypto-assets are treated according to the normal rules on inheritance tax.
For example:
A total estate of less than £325,000 is currently tax free and over that amount the tax rate will be 40 per cent.
Estates left wholly to spouses are normally exempt from tax regardless of their value, and donations to charity are always tax-free.
Cryptocurrency can fluctuate in value and a sudden drop could result in beneficiaries paying disproportionate taxes.
For example:
Assets could be valued at a certain amount for inheritance tax purposes but could be worth half of that a week later if the market crashes.
This means the amount of tax payable would not be updated to reflect a fall in value of crypto-assets after death.
Gifting crypto in the UK is taxed.
A gift of cryptocurrency is seen as disposal and is therefore subject to Capital Gains Tax.
The proceeds are considered to be the value of the crypto on the date of the transfer.
For inheritance tax purposes, the gift will be considered as a ‘potentially exempt transfer’ (PET) and no IHT will apply unless the ‘transferor’ dies within 7 years of the transfer.
When comparing the UK’s tax treatment of cryptocurrency to how some countries in the EU we can see major variations.
There is not currently one set rule for tax on cryptocurrency between EU countries.
However, in the UK, taxation on crypto assets and future developments are seen as less defined than in some European countries.
“Some countries like Malta and Portugal have gone as far as creating crypto havens.”
Tailiored Advice for UK tax on Cryptocurrency
Recommendations and obligations for crypto investors will vary depending on circumstance. This article offers a general overview of the topic.
We recommend always consulting a certified UK tax adviser for cryptocurrency to ensure your investments are treated in line with UK tax law and for maximum savings against tax.
To speak to one of our certified UK tax advisors drop us a message or book an appointment