Crypto tax UK: How to work out if you need to pay
For a refresher on crypto assets, we recommend reading our introductory article on Bitcoin, the blockchain and beyond. If you’re looking for a UK crypto accountant, or would like to enquire about any other services, please contact us. I have been with WIS accountancy for almost 2 years now and I am happy to say that I have had a great experience dealing with everyone at WIS. Always available to provide expertise for every business needs, highly recommended!
If you have the luxury of time on your side, you can always try to wait out a lower tax rate. Perhaps you’ve taken a strategic salary cut, are about to retire, or are headed back to school. If you’re able to move to a lower tax rate, timing your crypto disposals to coincide is an effective tax-reduction tactic. Any eligible gains made in the current tax year will need to be paid to HMRC by 31 January 2024. You can follow the same process to register for a self-assessment tax return on the GOV.UK website if you have never submitted one before. If you are unsure which one applies to you, it may be wise to contact an independent tax advisor to help you.
Cryptoassets and tax
Currently where a cryptoasset is an asset distinct from any underlying asset then HMRC determined its situs by the residency of the beneficial owner. HMRC say that the tax treatment of all types of crypto tokens depends on the nature and use of the token and not the definition of the token. HMRC does not consider crypto assets to be currency or money so that the tax exemptions for currency do not apply to crypto. Where this is not considered a trade, the value, calculated in pounds sterling at the time of receipt of any cryptoassets awarded, is taxable as miscellaneous income. HMRC has up to 20 years following the end of the relevant tax year to enquire into your tax returns. If you deliberately fail to declare taxable income or gains and tax has been underpaid, you may be liable to interest and penalties of up to 100% of the amount of tax due.
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- However, see Capital gains tax for individuals not resident in the UK, which explains an exception if you are non-resident in the UK only temporarily.
- Many countries are partially tax-free when it comes to crypto.
- A business or group of businesses will normally issue the tokens and commit to accepting the tokens as payment for the particular goods or services in question.
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Why might I have to pay tax on (and tell HMRC about) my cryptoassets?
This is to stop crypto investors from manipulating the ACB cost basis method by purchasing and selling assets at a loss in a short period of time to create an unrealistic view of gains and losses. But, it’s really important you keep records of your crypto transactions so you can keep a detailed account of your cost basis. This makes sure you can accurately calculate your crypto gains and losses later on.
If your DeFi activities have the ‘nature of income,’ they will be taxed. So if you paid £20,000 for 1 BTC and had to pay £150 in transaction https://xcritical.com/ fees, your cost basis would be £20,150. Your cost basis is the amount you paid for your crypto, plus any transaction fees.
Are there legitimate ways to reduce tax?
This would mean that if you make a disposal, any gain would potentially be taxable in the UK and could not be excluded from UK tax even if the remittance basis applied. On some types of cryptoasset you can earn ‘staking’ rewards in that cryptoasset. This is a bit like earning interest on money in a bank account in that you are rewarded for how to avoid crypto taxes uk locking away your cryptoassets for a certain period. You do not need to pay Capital Gains Tax on the value of the tokens that you’ve already paid Income Tax on. You’ll still need to pay Capital Gains Tax on the gain you make after you’ve received them. When you dispose of cryptoasset exchange tokens , you may need to pay Capital Gains Tax.
This will help to avoid any penalties and fines as well as unplanned tax bills. If you have sold, gifted or spent cryptocurrency within the tax year, you may need to declare any profit or gains on your self-assessment tax return. HMRC has precise guidance for crypto cost basis methods, known as share pooling. This stops crypto investors from manipulating the ACB cost basis method by selling their holdings at a loss to reduce taxes and repurchasing them shortly after.
Crypto tax UK: How to work out if you need to pay
So if you’re a basic rate taxpayer and make £15,000 in crypto profit, you’ll first need to deduct your £12,300 Capital Gains tax-free allowance. Then you’ll pay 10% Capital Gains Tax on the remaining £3,700. If you already earn over the personal allowance of £12,570, you’ll need to pay at least 20% tax on your crypto income. If you have, or have had, cryptoassets then we recommend you contact either DWP or HMRC to confirm how any cryptoassets, income or gains are to be reported. This is because according to HMRC the cryptoassets would be treated as being already located in the UK for a UK resident taxpayer, so the income would therefore be treated as automatically remitted to the UK.