THERE is no specific cryptocurrency tax in the UK.
Instead, your crypto will either be subject to Capital Gains Tax or Income Tax.
Here we explain crypto Capital Gains Tax, crypto Income Tax, and how to avoid paying tax on cryptocurrency.
Do you have to pay tax on cryptocurrency in the UK?
As cryptocurrency is classed as an asset in the UK, when you sell, spend or swap it, this is subject to Capital Gains Tax as its seen as disposal of an asset.
However, not all of your disposed assets are subject to Capital Gains Tax, and it’ll only be on the profit gained from disposing of it.
For example:
1) Profits from selling crypto for fiat currency (GBP, USD, Euros)
2) Using cryptocurrency to purchase goods or services
3) Profits from swapping crypto with crypto
4) Profits from gifting crypto – excluding to a spouse
Do you pay tax on all crypto profits?
No. Everyone in the UK currently has an annual tax-free allowance of £12,300.
How much Capital Gains Tax do I have to pay?
If your cryptocurrency profits are less than £12,300, you don’t need to pay any Capital Gains Tax, and you don’t need to report this to HMRC.
The total amount of Capital Gains Tax you’ll pay depends on the income tax bracket you fall into.
10% – Basic rate Income Tax band (up to £50,270)
20% – Higher rate Income Tax band (up to £150,000)
20% – Additional rate Income Tax band (more than £150,000)
When is cryptocurrency taxed as income?
Getting paid in cryptocurrency
Any cryptocurrency received as employment income is taxable in the same way you’d be taxed if you were paid in fiat (money).
If you receive all or part of your salary in cryptocurrency instead of fiat, you’ll have to pay income tax and NICs which will be based on the value of the crypto at the time.
Mining
Mining cryptocurrency is either a business or a hobby.
How it’s classed depends on a number of factors.
If your mining is classed as a business, the income will be added to your trading profits and be subject to Income Tax deductions.
When you dispose of the cryptocurrency in question, any gain in value will be added to your trading profits and subject to NICs.
If you’re mining as a hobby, any income must be declared under miscellaneous income on your tax return.
The income will be the value of the crypto at the time you receive it.
Rewards or fees will also be added to your taxable income.
You’ll be able to deduct expenses from this income before adding it to the taxable income.
Airdrops
Income tax will not apply to airdropped cryptocurrency as long as:
1) It isn’t accepted as part of a trade or business involving crypto
2) It’s received without doing anything in exchange
Any increase in the cryptocurrency’s valuation will be added to the trading profits and be subject to income tax as well as NICs.
If you receive an airdrop, you will be subject to Capital Gains Tax when you sell or exchange it.
Cryptocurrency tax breaks
UK investors can pay less tax on cryptocurrency by making the most of tax breaks.
1) £12,570 Personal Income Tax Allowance
Your first £12,570 of income in the UK is tax free.
You don’t get a Personal Income Tax Allowance if you earn more than £125,140 a year.
- Trading and Property Allowance
£1,000 of income from trading or property is tax free under the Trading and Property Allowance.
If you’ve got income from both, you can get £2,000 tax free.
- Capital Gains Tax Free Allowance
The UK has a Capital Gains Tax Free Allowance of £12,300.
If you make no more than £12,300 from capital gains in a single financial year, you’ll pay no Capital Gains Tax.
You also won’t pay tax on your cryptocurrency in the UK when you’re:
1) Buying crypto with GBP
2) HODLing crypto
3) Donating crypto to charity
4) Transferring crypto between your own wallets
5) Gifting crypto to your spouse
How do I report cryptocurrency taxes to HMRC
You will file your cryptocurrency taxes as part of your Self Assessment Tax Return.
1) Report crypto capital gains and losses on: SA100 and Capital Gains Summary SA108.
2) Report crypto income on: Box 17 of your Self Assessment Tax Return (SA100).
