Introduction
Are you considering investing in cryptocurrency and want to understand the tax implications in the UK? Then you’ve come to the right place. We’ll explore crypto tax in the UK in this blog.
While you could spend hours sifting through HMRC’s comprehensive guidance on crypto assets, We understand that not everyone has the time for that. That’s why we’ve written this crypto tax in the UK guide to help you understand UK crypto taxes in a simple and straightforward manner.
Crypto tax in the UK
Do you have to pay crypto tax in the UK? We’re afraid the answer is, yes. For most investors. But there are some exceptions to the rule.
Contrary to popular belief, crypto assets are not seen as money or currency by financial institutions. From a tax perspective, they are treated more like shares and will be taxed as such.
UK tax regulators are keeping a close eye on the industry, so it’s important for traders and investors to be aware of all the different types of transactions, from basic buy and sell orders to more complex scenarios like hard forks, airdrops, and staking.
The crypto industry is rapidly evolving, and as a result, the tax landscape has become increasingly complicated. With the emergence of unique cryptocurrency platforms for gaming and gambling, as well as the rise of non-fungible tokens and hybrid tokens with specific purposes, the asset class has changed significantly.
Situations under which you’ve to pay crypto tax in the UK
When it comes to paying crypto tax in the UK, there are a few activities you need to be aware of. Let’s take a closer look:
- Buying and selling crypto: You’ll likely face capital gains tax on the profit if you’ve sold your crypto for a larger amount than you bought it. However, if you’ve lost money through trading, those losses could reduce your capital gains tax bill. Also, swapping cryptocurrencies will trigger a taxable capital gains event. If you’re trading large amounts of crypto, HMRC may mark you a trader and then ask you to pay income tax instead of capital gains taxes on trading.
- Paid in crypto: Regardless of the crypto you’re paid in or who pays you, you’ll need to pay income tax in the UK and also your national insurance contributions.
- Crypto you inherit: HMRC considers cryptocurrency as property under UK tax law.
- Mining and validating: The way mining cryptocurrency is taxed depends on several factors, such as organization, risk, degree of activity, and commerciality. If your mining activity is labeled as a business, the income from mining will be counted as trading profits and be subject to income tax. If your mining activities can be considered as a hobby, any profit must be declared under miscellaneous income and subject to capital gains tax when you dispose of it.
- Staking: The GBP value of any tokens awarded will be taxable as miscellaneous income, and you may be able to deduct reasonable expenses. However, capital gains tax rules may apply if you dispose of it later on.
How much crypto tax do you have to pay in the UK
Income Tax on Crypto in the UK
Income tax is generally applied to those who are involved in buying, selling, or receiving cryptocurrency through a trade. The most common example is a day trader – someone who frequently buys and sells crypto assets with the intention of generating short-term profit.
However, if individuals are trading on their own account, they are unlikely to be considered a trader for income tax purposes and would instead fall under the capital gains tax regime. To meet the definition of “trading,” you must buy and sell crypto assets with a high level of intention, sophistication, frequency, and organization that it is considered a financial trade.
If you meet the criteria for trading, overall profits will be taxed as income tax at 20%, 40%, or 45% (based on the tax bracket your income falls into), as well as national insurance at 12% and 2%. Additionally, any money earned from crypto as an income will be subject to income tax at 0% to 45% (depending on your tax band in England, Wales, and Northern Ireland), or a 19% starter rate and 21% intermediate rate if you are in Scotland.
Capital Gains Tax on Crypto in UK
In most cases, anyone who buys, holds, and sells cryptocurrency on their own account is considered to be making an investment and, therefore, subject to capital gains tax. Disposing of crypto assets will trigger a taxable event, and the value of any disposal proceeds will be matched against purchases in a specific order:
- Crypto assets acquired on the same day
- Crypto assets acquired in the following 30 days
- The average cost of any unmatched crypto assets
In the United Kingdom, Individuals must pay capital gains tax on any gains above the annual tax-free allowance of £12,300. Gains above this amount will be taxed at 10% (if available) up to the basic rate tax band and 20% on gains at the higher and additional tax rates.
How to pay crypto tax in the UK
If you’re investing in cryptocurrency in the UK, it’s important to keep accurate records and report your gains on your annual tax return. The HMRC also has a real-time reporting service that you can use to pay crypto tax in the UK.
When you’re reporting, you need to declare a few things to the HMRC, like the type of tokens you have, the date you sold them, how many you sold and how many you still have, and the value of the tokens in pounds. You’ll also need to provide bank statements, wallet addresses, and records of the costs before and after you dispose of them.
Conclusion
In conclusion, crypto tax in the UK is taxed with crypto assets seen as shares and not as money/currency. There are various taxable events in the UK related to cryptocurrencies, such as buying/selling, trading, paid in crypto, inherited crypto, mining/validating, and staking. Income tax applies to those involved in buying, selling, or receiving cryptocurrency through trade but may not apply to individual traders.
Capital gains tax applies to most individuals who buy, hold, and sell crypto on their own account. The annual tax-free allowance is £12,300, and gains above this amount will be taxed at 10% or 20% based on the tax bracket.