Here we are with our definitive guide to cryptocurrencies taxation UK. Why did we decide to post this guide?

Cryptocurrency has become a buzzword in the financial world, captivating investors and tech enthusiasts alike with its potential for massive returns and disruption. But while the excitement around digital currencies continues to grow, so does the complexity of navigating their taxation. For those in the United Kingdom, understanding the ins and outs of cryptocurrency taxation can feel like deciphering a foreign language. That’s why we’re here to decode it all for you.

Cryptocurrencies Taxation UK: an introduction

In this comprehensive guide, we’ll take you on a journey through the intricate landscape of cryptocurrency taxation in the UK. From when taxation applies to how capital gains are calculated, we’ll leave no stone unturned. But we won’t stop there. We’ll also dive into the tax rates, deductions you can take advantage of, and the step-by-step process of filing your tax return. By the end of this article, you’ll be equipped with the knowledge and confidence to navigate the intricacies of cryptocurrency taxation in the UK.

Why it’s fundamental to understand crypto taxes in UK?

But why is this information so crucial? Well, the world of cryptocurrencies operates in a shifting regulatory environment, and staying compliant with tax laws is of utmost importance. By ensuring you understand the tax rules surrounding digital currencies, you can avoid potential penalties, fines, or even legal trouble down the line. So, without further ado, let’s demystify the world of cryptocurrency taxation in the UK and empower you to make informed financial decisions in this rapidly evolving landscape.

Remember, though, that understanding complex tax rules is no easy feat. That’s why it’s always recommended to seek guidance from the right resources. A well-designed crypto tax software can be your best friend on this journey, helping you accurately track, calculate, and report your gains and losses. So, let’s dive in and uncover the definitive guide to cryptocurrency taxation in the UK – because knowledge is power, and when it comes to taxes, ignorance is definitely not bliss.

When Does Taxation to CryptoCurrencies Apply?

When it comes to cryptocurrency taxation in the UK, it’s crucial to understand when taxation actually applies. This knowledge is essential because the regulatory landscape surrounding digital currencies is constantly shifting, and staying compliant with tax laws is of really importance to avoid potential fines, as said before.

Not all income that a person gains is taxable in UK. So, the first question is: does taxation apply to incomes from cryptocurrency activities (like trading, mining, staking etc.)? And in which cases it is taxable?

The generic answer is: it depends. Actually, we really have to make some distinctions first among the so called cryptocurrencies “transactions”, since some of them are taxable, while others aren’t. And we’ll examine these cases later, but first, let’s take at the generic cases in which there are exemptions from Capital Gains Tax.

When you’re exempted from taxation on crypto in UK

In the UK, tax exemptions refer to specific amounts or types of income that are not subject to taxation. These exemptions are designed to reduce the tax burden on individuals or entities. One common example of tax exemption in the UK is the Capital Gains Tax (CGT) exemption, which is the amount of profit you can make on the sale of an asset before you are required to pay CGT.

The exemptions from Capital Gains Tax are specified as follows for the respective tax years:

• For the tax year 2022-2023 (to be declared by 31 January 2024), the allowable exemption is £12,300.00 GBP.

• In the tax year 2023-2024 (to be declared by 31 January 2025), the exemption reduces to £6,000.00 GBP.

• Looking ahead, for tax years 2024-2025 and subsequent years (to be declared by 31 January 2026 and thereafter), the applicable exemption stands at £3,000.00 GBP.

How much is the cryptocurrencies taxation in UK?

In the vast majority of cases, individuals hold crypto assets as a personal investment, typically for capital appreciation or to make specific purchases. They will be required to pay Capital Gains Tax when they dispose of their crypto assets.

Transactions and uses of cryptocurrencies include:

• Sale of Cryptocurrencies: the transfer of cryptocurrencies into GBP or another fiat currency.

• Exchange of Cryptocurrencies: this category encompasses the exchange of cryptocurrencies for other cryptocurrencies, including stablecoins, providing investors with considerable flexibility in their portfolio management strategies.

• Use of Cryptocurrencies for Purchases: the use of cryptocurrencies to buy goods and services, a practice that is becoming increasingly common and underscores the evolution of the cryptocurrency sector.

• Donation of Cryptocurrencies: with the exception of donations to one’s spouse or civil partner, donations of cryptocurrencies may be subject to Capital Gains Tax.

The tax rate applied to cryptocurrency gains will be either 10% or 20%, depending on the individual’s total income:

• 10%: For a total income less than £50,270, offering a tax incentive for crypto asset holders with lower incomes.

• 20%: For a total income exceeding £50,270, reflecting a higher tax rate for those enjoying more substantial incomes from such transactions.

It’s important to note that these rates may change in the future, so it’s always a good idea to consult with a tax professional or refer to the latest guidance from HM Revenue and Customs (HMRC) to ensure you have the most up-to-date information.

Income Tax and Cryptocurrencies

Individuals are required to pay income tax and national insurance contributions on crypto-assets received from:

• Employer as Non-Cash Payment: when received from an employer as a form of non-cash payment.

• Agreed-upon Amounts: when the amount to be received is predetermined, unlike speculative and unknown transactions.

• Mining, Staking, Transaction Confirmation, or Airdrop Activities: in cases involving mining, staking, transaction confirmation, or airdrop activities.

• Payments from Borrower/DeFi Platform: when the amount is paid by the borrower or a DeFi platform.

• Periodic Payments during Loan/Staking Period: in situations where payments are made periodically during the loan or staking period.

While it is uncommon, there may be instances where an individual conducts a business that involves financial activities with crypto-assets, resulting in taxable profits from trading activities. In such rare cases, income tax rules would take precedence over capital gains tax rules.

Cryptocurrency Tax Rates in UK for companies

Lastly, if you are the owner of a company or a partnership and you dispose of or sell cryptocurrency, the gains may be subject to corporation tax instead of capital gains tax. The current corporation tax rate in the UK is 19%, but it is advisable to consult with a tax advisor to understand the specific implications for your business.

Calculation of Income from Cryptocurrencies

The core point for taxes on the income from crytocurrencies is to calculate their amount.

Income from cryptocurrencies is calculated by identifying the fair market value of the coins or tokens on the day and time they were received, converted into GBP.

Income relief is provided as follows:

• Total income less than £125,000.00 GBP per annum → £12,570.00 GBP relief

• Total income exceeding £125,000.00 GBP per annum → no deduction.

This approach ensures a fair and straightforward calculation of income from cryptocurrencies, taking into account varying income levels.

For individuals with total income below £125,000.00 GBP annually, a relief of £12,570.00 GBP is applicable. Conversely, for those with total income surpassing £125,000.00 GBP per annum, no deduction is granted.

For more detailed information on the calculation of income from cryptocurrencies, you can explore the dedicated page at this link.

Cryptocurrency Taxation in UK: How to Deal with Capital Losses

Within the UK tax framework, there exists a notable flexibility regarding the offsetting of capital losses against capital gains, and this also applies, of course, to cryptocurrencies taxation. Unlike some jurisdictions, there is no prescribed ceiling on the magnitude of capital losses that a taxpayer can apply to mitigate their capital gains liability.

In practical terms, this means that individuals have the liberty to employ any amount of capital losses they have incurred to diminish their capital gains tax liability, effectively up to the extent of the Capital Gains Tax exemption. By doing so, taxpayers can strategically manage their financial position to avoid any Capital Gains Tax obligation.

Moreover, these recorded capital losses are not subject to a rigid expiration date. They can be carried forward indefinitely until fully utilized. However, it is imperative for taxpayers to ensure that these losses are duly reported when filing their income tax returns through the self-assessment tax return process.

For prudent financial planning, it is recommended to submit an income tax return even if the capital gains amount doesn’t necessitate it. This proactive approach enables individuals to carry forward losses, creating a valuable asset for offsetting against potential future gains.

In the broader context, while there is a standard practice to record capital losses in the year of occurrence, it’s noteworthy that Her Majesty’s Revenue and Customs (HMRC) extends a lenient four-year window for taxpayers to report such losses. After this specific timeframe elapses, individuals lose the opportunity to officially register these losses and leverage them for offsetting against prospective capital gains in subsequent years. This underlines the importance of timely and strategic financial reporting within the UK tax system.

How Is Capital Gain Calculated?

In the UK, capital gains tax is applied to any profit made from selling or disposing of an asset, including cryptocurrencies.

To calculate your capital gain, you need to determine the difference between the value of your cryptocurrency when you acquired it and the value when you sold or disposed of it.

It’s important to note that capital gains tax is only payable on the actual gain made, not the total amount received. This means that if you sell your cryptocurrency for a higher amount than what you initially paid, you will only be taxed on the profit you made.

To ascertain the value of your cryptocurrency when you acquired it, the HM Revenue & Customs (HMRC) allows you to choose from various valuation methods, including using the value of the cryptocurrency in British pounds sterling at the time of acquisition. It’s generally advisable to keep thorough records of your transactions, including the date, time, and value of each transaction, to accurately calculate your capital gain.

Additionally, if you have made multiple transactions involving the same type of cryptocurrency, you will need to calculate the capital gain for each transaction separately. This means that you should evaluate the gain or loss for each disposal or sale of the cryptocurrency based on its individual value at the time of the transaction.

Calculating capital gains for cryptocurrency can be a complex task, especially if you have made numerous transactions or held multiple types of cryptocurrencies. In such cases, using a reliable crypto tax software can greatly simplify the process and ensure accurate calculations.

Cryptocurrencies taxation in UK: Calculation of capital gains and losses

The cost of acquisition signifies the amount the taxpayer paid to acquire their cryptocurrencies, inclusive of any transaction fees incurred.

If the cryptocurrencies were obtained through alternative means such as an airdrop or fork, the fair market value, denominated in GBP, of the cryptocurrencies at the time of receipt will serve as the cost of acquisition.

Understanding the methods employed to compute capital gains and losses is crucial for accurate financial reporting. Various factors, including the initial cost of acquisition, can influence the overall outcome. If you are interested in delving deeper into the settlement methods utilized to calculate capital gains and losses, you can find more information on the dedicated page at this link.

Taxes on Lost or Stolen Cryptocurrencies in UK

Many wonder what to do with taxes on cryptocurrencies if they have been stolen or lost. Formally, in fact, they could still be the owners, but no longer have actual availability. Paying taxes on it would therefore be a double insult!

Cryptocurrencies that have been lost are not regarded as disposals for capital gains tax purposes, as the asset still technically exists even if the private key is lost. Therefore, if you’ve misplaced your private key, you cannot deduct this loss as a capital loss.

However, if you can demonstrate that there is no conceivable way to recover your private key and regain access to your asset, you have the option to file a negligible value claim. If this claim is successful, you can subsequently deduct your lost cryptocurrencies as a capital loss.

Similarly, for stolen cryptocurrencies, the United Kingdom’s Revenue Agency (HMRC) does not classify theft as a disposal. Consequently, you cannot deduct stolen cryptocurrencies as a capital loss.

Simultaneously, there will be no capital gains tax liability on either lost or stolen cryptocurrencies. This means that you won’t incur any capital gains tax on the lost cryptocurrencies, nor on those that have been stolen. Understanding the nuanced treatment of lost or stolen cryptocurrencies within the tax framework is crucial for accurate financial reporting and ensures compliance with HMRC regulations. For further details on these topics, you may refer to the dedicated page at this link.

Cryptocurrency Taxation in UK: let’s see specific cases

Now we’ll see different specific cases of cryptocurrency taxation in UK, so that we’ll try to cover many examples – in some of these cases you could find yourself there too.

So, let’s dive in!

Crypto-to-Crypto Transactions: are they taxed?

Crypto-to-crypto trading in the United Kingdom is subject to taxation. Therefore, if you are exchanging bitcoin for Ether or any other cryptocurrency, you will be liable to pay Capital Gains Tax.

The United Kingdom’s Revenue Agency (HMRC) views this transaction as two separate events. The trading of your asset constitutes a disposal, much like selling or spending it. Consequently, on the asset you have disposed of, you will incur Capital Gains Tax if you have realized a gain.

To calculate the capital gain, you need to use the acquisition cost of the cryptocurrency disposed of and subtract it from the fair market value of that asset on the day you exchanged it for another cryptocurrency.

Purchasing cryptocurrencies with stablecoins is treated as a cryptocurrency trade, and any profit is thereby subject to Capital Gains Tax.

It is essential to keep records of all crypto-to-crypto transactions, including the date, value, and purpose of the transaction, to ensure accurate reporting and calculation of tax liability.

For more detailed information on the taxation of crypto-to-crypto transactions, you can explore the dedicated page at this link.

Taxation for Cryptocurrency Transfers

The transfer of cryptocurrencies between your wallets or cryptocurrency exchanges that you own is exempt from taxes.

Fees incurred for such transactions are only taxable if paid in cryptocurrencies, as they are regarded as a disposal of an asset, and any resulting profit is subject to Capital Gains Tax.

However, fees paid in fiat currencies, such as pounds, are exempt from taxes.

This distinction emphasizes the tax treatment based on the nature of the fees involved in cryptocurrency transfers. For more detailed information on the taxation of cryptocurrency transfers, you can explore the dedicated page at this link.

Taxation in case of activity in Liquidity Pools

If you receive a liquidity pool token in exchange for your cryptocurrencies, this is considered a disposal.

You can calculate your acquisition cost based on the tokens sent to the pool and subtract that amount from the fair market value of the tokens at the time of disposal. Your liquidity pool tokens then inherit this as the acquisition cost when you decide to remove them from the pool.

Understanding the taxation implications of liquidity pool transactions is crucial for accurate financial reporting and ensures compliance with relevant tax regulations. For more detailed information on the taxation of liquidity pool transactions, you can explore the dedicated page at this link.

Taxation in case of Soft Fork and Hard Fork in UK

For soft forks, where no new assets/tokens are received, no taxes are incurred.

In the case of hard forks, where new coins/tokens are received, no income tax is payable. However, the acquisition cost for any coins received from a hard fork is derived from your existing tokens of the previous blockchain, not from the fair market value of the coin at the time of receipt.

For more detailed information on the taxation of soft and hard forks, you can visit the dedicated page at this link.

Taxation of Cryptocurrency Airdrops

Airdrops are considered as income if specific actions were taken to acquire them. This might include sharing a post on social media or receiving a reward for previous operations on a particular blockchain.

However, airdrops are not considered income if received without actively performing any kind of action.

Income calculation is based on the fair market value of the tokens at the time of receipt, denominated in GBP.

Airdrops are subject to both income tax at the time of receipt and Capital Gains Tax at the time of disposal in situations such as selling, exchanging, spending, or donating.

The acquisition cost for airdrops is the fair market value at the time of receipt, in GBP.

If you want to get more information on the taxes of crypto airdrops, visit the dedicated page at this link.

Taxation of Gifts and Donations of Cryptocurrencies

In the United Kingdom, donating cryptocurrencies is taxable. It is considered a form of disposal and is therefore subject to Capital Gains Tax.

However, you can gift cryptocurrencies to your spouse or civil partner without incurring taxes, and you can donate cryptocurrencies to a registered charity without paying taxes.

Understanding the tax treatment of gifts and donations involving cryptocurrencies is crucial for accurate financial reporting and ensures compliance with relevant tax regulations. For more detailed information on the taxation of cryptocurrency gifts and donations, you can explore the dedicated page at this link.

Taxation of Crypto Mining in UK

Miners will be subject to Income Tax on the coins mined, as well as Capital Gains Tax when they subsequently dispose of these coins.

If your mining activity is classified as a hobby, then any income derived from mining must be declared separately under the “miscellaneous income” category in your tax return.

As per any other cryptocurrency activity, it’s crucial to track records of your mining activity and transactions.

Should you pay taxes for DeFi (Decentralized Finance)?

Operations such as adding or removing liquidity, staking, and receiving substantial sums from DeFi protocols are considered disposals and are therefore subject to Capital Gains Tax.

Meanwhile, returns can be regarded as income if:

The expected return is predetermined, unlike speculative and unknown transactions.

The return is paid by the borrower/DeFi platform.

The return is paid periodically during the loan/staking period.

Obtaining new tokens or coins periodically through DeFi activities is more likely to be considered income and subject to Income Tax.

The taxes payable on DeFi transactions depend on whether they are considered as “earnings” of cryptocurrencies or “disposal” of cryptocurrencies. In the case of “earnings,” Income Tax will apply, whereas in the case of “disposal,” Capital Gains Tax will be applicable.

You can find more information on the taxation of DeFi transactions at this link.

Taxes in case of Purchase of Goods or Services in Cryptocurrencies

Simply put, spending your cryptocurrencies is subject to Capital Gains Tax because you are disposing of your asset.

If you want more information of this subject, you can explore the dedicated page at this link.

What Are the Tax Deductions?

In addition to knowing the rates, it is important to be aware of the potential tax deductions available to cryptocurrency traders. These deductions can help to reduce your overall tax liability and maximize your profits.

Deducting Cryptocurrency Transaction Fees

In addition to knowing the rates, it is important to be aware of the potential tax deductions available to cryptocurrency traders. These deductions can help to reduce your overall tax liability and maximize your profits.

One common deduction available to cryptocurrency traders is the cost of acquiring the cryptocurrencies. This includes the price you pay to purchase the coins as well as any transaction fees involved. Keeping track of these costs can help offset your gains and minimize your taxable income.

Another deduction that may apply is the cost of any professional services you use for trading cryptocurrencies. This could include fees paid to financial advisors, software providers, or any other service that assists you in managing your crypto investments. These expenses can be deducted as business expenses and further reduce your taxable income.

Additionally, any losses incurred from cryptocurrency trading can be used to offset your gains and lower your tax liability. If you experience a loss on one transaction, it can be subtracted from the gains on another transaction, reducing the overall taxable amount. It is important to accurately track and report these losses to take advantage of this deduction.

It’s worth noting that the availability and eligibility of these deductions may vary depending on your specific circumstances. Therefore, it is advisable to consult with a tax advisor or accountant who specializes in cryptocurrency taxation to ensure you are taking advantage of all applicable deductions and optimizing your tax position.

By understanding and leveraging these potential deductions, you can strategically reduce your tax liability while complying with UK cryptocurrency taxation regulations. Now, let’s delve into the process of filing a tax return and how to navigate the complexities of reporting your cryptocurrency transactions in order to stay compliant.

Cryptocurrency Taxation in UK: How to File the Tax Return

By understanding and leveraging potential deductions, you can strategically reduce your tax liability while complying with UK cryptocurrency taxation regulations. It’s worth noting that the availability and eligibility of these deductions may vary depending on your specific circumstances. Therefore, it is advisable to consult with a tax advisor or accountant who specializes in cryptocurrency taxation to ensure you are taking advantage of all applicable deductions and optimizing your tax position.

Now, let’s delve into the process of filing a tax return and how to navigate the complexities of reporting your cryptocurrency transactions in order to stay compliant. Filing a tax return for cryptocurrency activities follows the same general process as filing for traditional investments or income. The key is accurately reporting your cryptocurrency transactions and calculating the corresponding tax liability.

First, gather all necessary documentation related to your cryptocurrency transactions, such as records of purchases, sales, transfers, and any other relevant details. Keep track of transaction dates, amounts, and the value of the cryptocurrency at the time of each transaction. This information will be crucial for accurately reporting your gains or losses.

Next, you’ll need to determine the appropriate tax treatment for your cryptocurrency transactions. In the UK, cryptocurrency is subject to capital gains tax (CGT) if it is regarded as an investment. However, if you are actively trading in cryptocurrencies or operating a business that involves cryptocurrencies, your activities may be subject to income tax or corporation tax instead. It’s important to correctly identify the nature of your cryptocurrency activities to ensure you are applying the correct tax treatment.

Once you have determined the tax treatment, you can proceed with filling out the relevant sections of your tax return form. In the UK, you will likely use the Self Assessment tax return form. Report your cryptocurrency gains or losses in the appropriate sections, ensuring that you provide accurate and comprehensive information to support your calculations. It is recommended to include a separate schedule or additional documentation to outline your cryptocurrency transactions in detail.

If you are unsure about any aspect of reporting your cryptocurrency transactions or calculating your tax liability, it is highly recommended to seek professional advice from a tax advisor or accountant who specializes in cryptocurrency taxation. They can guide you through the process, help you identify any potential deductions or allowances, and ensure your tax return is accurately filed.

By following these steps and seeking appropriate guidance, you can confidently file your tax return and stay compliant with UK cryptocurrency taxation regulations. Now, let’s explore additional information that can further enhance your understanding of cryptocurrency taxation in the UK.

What is the Financial Year in the United Kingdom

The financial year in the United Kingdom runs from April 6th to April 5th of the following year.

Taxpayers are required to file their income tax returns by January 31st of the year following the ongoing fiscal year (e.g., January 31, 2024, for the fiscal year 2022-2023).

Understanding the fiscal calendar is crucial for meeting tax obligations and ensuring timely and accurate submission of income tax returns.

Where to Declare Your Cryptocurrencies

Taxes on cryptocurrencies are reported as part of the Self Assessment Tax Return. In summary:

Gains and capital losses on cryptocurrencies: fill out form SA100 and the SA108 Capital Gains Summary.

Income from cryptocurrencies: enter the information in Box 17 of the Self Assessment Tax Return (SA100).

These specific references within the tax return ensure that all cryptocurrency transactions and incomes are accurately reported to the UK tax authorities. It is crucial to diligently complete these sections to ensure compliance with tax regulations and accuracy in personal financial statements.

Additional Information on Taxation of Cryptocurrencies in UK

By following these rules and making the right calculations (with a software, you’ll remember it!), you can confidently file your tax return and stay compliant with UK cryptocurrency taxation regulations.

Now, let’s explore additional information that can further enhance your understanding of cryptocurrency taxation in the UK.

It’s important to note that HM Revenue & Customs (HMRC) has been closely monitoring cryptocurrency transactions and has increased its efforts to identify those who may be evading taxes. This means that it’s crucial for individuals involved in cryptocurrency transactions to keep accurate and detailed records of their activities. Failure to do so could lead to penalties or even criminal charges.

Additionally, as the cryptocurrency industry continues to develop, tax regulations and guidelines may evolve as well. It is important to stay updated on any changes or clarifications provided by HMRC regarding cryptocurrency taxation. Keeping abreast of the latest developments will ensure that you are well-informed and can accurately report your cryptocurrency-related activities.

How to deal with crypto taxes in UK so?

In conclusion, navigating the world of cryptocurrency taxation in the UK can be a daunting task. This article has provided a comprehensive overview of the tax rules applicable to cryptocurrencies, covering topics such as when taxation applies, how capital gains are calculated, tax rates, deductions, and how to file a tax return.

It is of capital importance to deeply understand these tax rules to ensure that all gains and losses are properly declared. Failure to do so can lead to serious consequences. As the popularity of cryptocurrencies continues to grow, it becomes even more important to stay informed and compliant with the tax regulations.

To make this process easier, utilizing a reliable and well-designed crypto tax software is highly recommended. Such software can simplify the complex calculations and ensure accurate reporting.

CryptoBooks is currently the best designed and developed crypto tax software on the market, ensuring the highest compliance with UK cryptocurrency tax legislation and allowing you to declare your crypto assets safely. Thanks to CryptoBooks you will not pay more taxes than necessary and you will not risk sanctions and tax fines, sleeping soundly.

Try it free for 7 days, no credit card required: you will discover how simple, intuitive and effective it is!