FAQ UK Cryptocurrency Accountant and Tax advisers Cryptocurrency Tax specialist

Then you convert all figures into your currency – UK sterling for most people reading this. It’s simple to calculate your capital gain or loss once you have your cost base. A capital gain or loss is the difference in value between when you purchased the asset and when you sold, swapped, spent, or gifted it. Subtract your cost basis from the fair market value of the asset on the day you disposed of it if you spent, traded, or gifted it.

• You can make both the loss and negligible value claim to HMRC at the same time.
• In some circumstances, cryptocurrency is recognised as income and hence subject to income tax.
• The key test to determine if you are trading for tax purposes is to apply the Badges of Trade.
• You can add up your cost basis based on tokens you’ve sent to the pool and then subtract that amount from the fair market value of the tokens at the point of disposal.
• As ever, it’s important to understand the tax treatment and your reporting obligations.
• Also, as mentioned above, if you have made any losses on crypto transactions, you can offset them against any gains.

Broadly, this means that such taxpayers can exclude foreign gains from UK tax if the proceeds are kept offshore – that is, not brought to the UK. However, individuals are unlikely to meet the description of a ‘trader’ for income tax purposes if trading on their own account, meaning they will likely be considered under the capital gains tax regime. If you’re trading huge amounts of crypto – or anything that will be considered ‘exceptional circumstances’ – HMRC will think you are a trader and ask you to pay income tax on trading, rather than capital gains taxes. Some individuals may also be involved in mining and validating transactions, as well as staking and yield farming.

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If your mining activity is considered a business, the mining income will be added to trading profits and be subject to income tax deductions. The very nature of cryptoassets is that they are decentralised and digital in nature and do not have a physical location or exist anywhere. However, determining the location or ‘situs’ of assets is important for tax purposes and particularly for UK residents, non-UK domiciles as it can change the tax consequences dramatically. Many cryptoassets are traded on exchanges that do not use pound sterling and it is also common in the crypto world to directly exchange one cryptoasset for another. Add into this the daily volatility in the crypto market, and actually valuing your cryptoassets on disposal can be tricky.

It’s seen as a disposal of an asset and you’ll need to pay Capital Gains Tax on any profit. To calculate your capital gain, you’d use the cost base of the crypto you disposed of and subtract it from the fair market value for that asset on the day you traded it for another crypto. Now that we’ve covered everything there is to know about crypto capital gains, let’s move on to crypto income and income tax. Your cost basis is how much it cost you to buy your crypto, plus any transaction fees.

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However, airdrops are not considered income if you receive them without providing some kind of service or action in return. This matters because when you later spend, sell, swap or gift coins you received from a hard fork – they will still be subject to Capital Gains Tax at this point, just like any other crypto.

The term cryptoassets is used to encompass all these different types of currencies and tokens. Typically, what they will all have in common is that they are digital assets that use cryptography and a public, decentralised ledger to track ownership, secure and verify transactions. Interest in crypto assets has been steadily growing in the public consciousness since the arrival of Bitcoin back in Crypto Taxes in the United Kingdom 2009. Other than in very specific circumstances, a capital loss is not usually available to offset against income and this will not be available in relation to capital losses incurred on cryptoassets. Whilst financial markets generally have been suffering, the losses seen in cryptocurrency markets represent more of a meltdown in value, with some badging it as the start of a ‘crypto winter’.

A comprehensive tax guide to UK Cryptocurrency

The UK’s HMRC has very specific rules for crypto cost basis methods, known as share pooling. This is to stop crypto investors from manipulating the ACB cost basis method by purchasing and selling assets at a loss in a short period of time to create an unrealistic view of gains and losses. If you are not resident in the UK, then in general you are not liable to UK capital gains tax on disposals of cryptoassets. However, see Capital gains tax for individuals not resident in the UK, which explains an exception if you are non-resident in the UK only temporarily. Individuals pay capital gains tax on their total gains above an annual tax-free allowance of £12,300.

Please be aware that it will be subject to capital gains tax when you dispose of this crypto. If you receive all or part of your salary/freelance income in cryptocurrency instead of fiat currency, you will have to pay income tax and NICs based on the value of the crypto on the date of receipt. Please be aware; the rules are different depending on whether the crypto asset you receive is a Readily Convertible Asset or not. As crypto is classed as an asset in the UK, when you swap, sell or spend it, this is seen as a disposal of an asset and subject to capital gains tax. HMRC has published guidance for people holding crypto assets that you can view here. The online manual explains the taxes you may need to pay and the records you must keep. HMRC has also published information for companies and businesses about the tax treatment of crypto asset transactions.