Discover all the essential information on managing crypto tax for profits and earnings derived from purchasing, selling, and investing in digital assets.
Cryptocurrency Investment Insights in the UK by MJ Kane
Recent research conducted by the Financial Conduct Authority revealed a significant uptick in cryptocurrency investments within the United Kingdom. This denotes a staggering 162% growth in UK crypto investors over two years.
Currently, the UK does not have specific ‘crypto tax’ laws. However, cryptocurrency transactions may be liable for income tax or capital gains tax.
MJ Kane’s Guide to Crypto tax on Assets and Currency
What are Cryptoassets?
Cryptoassets, such as Bitcoin, are digital assets. Among these, non-fungible tokens (NFTs) stand out as unique digital assets without a tangible form.
Cryptocurrency, a form of digital token, is protected by cryptography to prevent fraud and counterfeiting. Its transactions use distributed ledger technology (DLT), eliminating the need for central authorities like banks or governments. The blockchain is the most famous DLT system. Bitcoin, launched in 2008, was the first cryptocurrency, followed by others like Ethereum and Litecoin.
Location of Cryptoassets for Tax Purposes
Despite their intangible nature, the location of cryptoassets must be determined for tax purposes, especially for:
- UK residents who are non-domiciled, for tax liabilities.
- Matters involving offshore tax disclosures.
HM Revenue & Customs (HMRC) considers the tax residence of the beneficial owner as the location of the cryptoassets.
Crypto Tax on Cryptoasset Gains
Disposing of cryptoassets can include selling, using for purchases, gifting, swapping, or buying other cryptoassets. The general tax implications are:
- Capital Gains Tax (CGT) for personal investment in cryptoassets.
- Income tax for trading activities involving cryptoassets.
Crypto Capital Gains Tax Rates
CGT is applicable on gains from disposing of cryptoassets exceeding the tax-free allowance. Rates vary based on total earnings and tax status:
- Basic rate taxpayers: 10%
- Higher and additional rate taxpayers: 20%
You can use MJ Kane’s tax calculator to check how much you might owe.
Miscellaneous Receipts from Crypto Investment
Miscellaneous income from crypto investment can include airdrops, forks, mining, staking, and loan interest, typically taxed as miscellaneous income.
Crypto Miscellaneous Income Tax Rates
Income tax rates depend on your total earnings and tax status. In England, Wales, and Northern Ireland, rates range from 20% to 45%, while Scotland has rates from 19% to 46%.
Reducing Tax on Cryptoassets
HMRC’s Cryptoassets Manual lists deductible expenses from your gain, including purchase costs, transaction fees, advertising costs, professional fees, and valuation costs. Note that mining-related expenses are not deductible for CGT.
When to Pay Tax on Crypto?
You can report gains via self-assessment tax return or HMRC’s real-time service. Taxes are usually due by 31st January following the assessment year, with some income tax payable in two instalments.
Maintain detailed records of all cryptocurrency transactions, including types, dates, quantities, sterling values, bank statements, and wallet addresses.
Crypto Tax for Businesses
Businesses dealing with cryptocurrency might need to consider Corporation Tax, Income Tax, National Insurance, stamp taxes, and VAT.
MJ Kane’s Support for Your Cryptoasset Taxes
MJ Kane offers expert advice on cryptoasset tax planning to mitigate potential liabilities. For assistance, call 0800 0523 555 or use our online enquiry form for a free consultation.