It’s pretty hard to avoid cryptocurrencies these days. They attract a lot of attention in the press and, more frequently now, from clients too. Enquiries I get are usually along the lines of “what if I do this with cryptocurrency” or “I know someone who has been crypto trading, how does it work for tax?”.

I thought that now might be a good time to share some basics about the tax implications associated with Crypto, but if you have any specific queries, please just get in touch.

Crypto basics

Cryptocurrency are treated as assets, not currency, for tax purposes and so generally follow Capital Gains Tax (CGT) principles. This means you could face a tax charge with any ‘disposal’ which includes:

  • Selling tokens for money
  • Exchanging tokens for a different type of token
  • Using tokens to pay for goods or services
  • Giving away tokens

This is often misunderstood, and we have had several discussions with people who have (in particular) swapped tokens from one currency into another, without realising this is a tax disposal.

Tax considerations

Reporting

If you’ve been dabbling in Crypto, and as part of that you have been switching between currencies, you need to consider whether you have made any profit (or indeed losses) on those exchanges, because they may need reporting.

Exchange fees

You should not assume that all exchange fees are tax-deductible.

Annual exemption

As with any capital gains, the annual exemption is £12,300. You don’t have to report anything on a tax return if your gains are below this and your total proceeds from all sales are below four times the annual exemption (i.e., £49,200).

Day trading

In some cases, Crypto gains and losses can be taxed as income if you are a ‘day’ trader. Day trading is a short-term trading strategy based on the purchase and sale of Crypto assets on the same day. Trading activity is considered on a case-by-case basis against criteria known as ‘badges of trade’ which includes the length of the period of ownership and the frequency or number of similar transactions by the same person, amongst others.

Inheritance tax

You should also remember that any Crypto assets are treated as part of your estate for Inheritance tax
(IHT) purposes. Just because you cannot readily see them doesn’t mean there isn’t a tax aspect to consider.

How we can help you

If you have any Crypto queries, please call Sagars on 0113 297 6789 or email Kate Naylor.

Kate Naylor
Kate Naylor
Tax Partner

Kate works with businesses and their owners on tax strategies and mitigation, looking at business and personal tax structures to achieve long term goals.

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