Are you looking to purchase your first cryptoasset? Or maybe you have already made a jump into cryptoasset investments? Either way, it is important to understand the quantum and timing of your tax exposure as well as what records you need to keep.
Tax – basic treatment
HMRC considers cryptoassets a capital asset held for investment purposes. This means that sales or disposals of cryptoassets will usually generate a capital gain or loss for tax purposes. Capital gains are subject to Capital Gains Tax (“CGT”).
Capital gains may occur when you:
- Sell cryptoasset tokens
- Exchange cryptoasset tokens for a different type of cryptoasset token
- Use cryptoasset tokens to pay for goods or services
- Give cryptoasset tokens away to another person (excluding a spouse or civil partner).
The gain on the disposal of cryptoassets are typically the cryptoasset value at disposal in £GBP less:
- The cost of purchase
- Transaction fees
- Advertising for a purchaser or a vendor
Purchases and sales of cryptoassets are “pooled” for tax purposes. Each type of cryptoasset is to be kept in
its own pool.
The specific method of taxation and the amount chargeable depends on whether the investment is held by an individual, or within a structure such as a limited company – see below for the difference.
Individuals
Net cryptoasset gains after the utilisation of any available capital losses in the tax year to 5 April should be reported
on a self-assessment tax return. Any tax due becomes payable by 31 January following that tax year end.
Each individual in the UK is also entitled to an Annual Exemption (“AE”) from CGT. The 2021/22 tax year the amount is £12,300.
Companies
Disposals of cryptoassets within a company structure will be reported on the company’s corporation tax return. Any
resulting tax will fall due 9 months and 1 day after the end of the company’s accounting period.
The gain is chargeable to corporation tax, currently at a rate of 19%. The AE is not available to companies.
Traders
In some exceptional cases HMRC may consider cryptoassets activity to be a trade. Whether the buying and selling of
cryptoassets amounts to a trade will depend on a range of factors including:
- Frequency
- Level of organisation
- Intention
Record keeping
HMRC state that it is the taxpayer’s responsibility to keep separate records for each cryptoasset transaction.
Such records include:
- The type of cryptoasset
- Dates of transactions
- If they were bought or sold
- The number of units involved
- Values of the transactions £GBP (at the date of the transactions)
If you have a lot of cryptoasset transactions, it might be advisable to make use of a UK tax compliant cryptoasset-tracking software to record your gains.
Find out more
If you need professional advice in connection with a cryptocurrency asset, please get in touch with one of our team.