Bitcoin Tax – CGT, Income Tax & Cryptocurrency

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Andy Wood

Andy is a practical, creative tax adviser who assists a variety of clients in achieving their personal and commercial objectives in the most tax efficient manner.

Bitcoin Tax – CGT

Bitcoin tax – general

 For a full guide on the taxation of cryptocurrency, including Bitcoin, in the UK please visit here.

Bitcoin tax in the UK

In broad terms, those individuals who have disposed of cryptoassets will be taxable to either Capital Gains Tax (CGT) or income tax (IT).

Where a company is dealing in cryptocurrency such as Bitcoing, then it will be subject to corporation tax (CT).

HMRC has confirmed that it expects that most taxpayers who are dealing in cryptocurrency will be subject to CGT on the disposal of their cryptoassets. This is because they will usually be held as investment property.

If taxable to CGT, a taxpayer will pay tax at the rates of 10% or 20%, dependent upon the taxpayers’ level of income.

Bitcoin tax – when might tax be due?

CGT will be chargeable on the following taxable events:

  • A sale of Bitcoin for money;
  • Exchanging Bitcoin for a different type of cryptoasset;
  • Using Bitcoin to pay for goods or services; and,
  • Gifting Bitcoin to another person.

Alternatively, a taxpayer will be chargeable to income tax (IT) and national insurance (NI) in circumstances where cryptoassets have been:

  • Received as earnings;
  • Mined;
  • Airdropped; or,
  • Traded

IT is chargeable at the rates of 20%, 40% and 45% and NI is chargeable to 12% and 2%.

If income tax is applicable, HMRC state that IT treatment will take priority over CGT treatment.

In its previous 2014 guidance, HMRC had clearly stated that some Bitcoin holdings were not taxable because they were analogous to gambling or were otherwise highly speculative activity.

However, in the most recent guidance, HMRC expressly stated that they had changed their mind in this regard.

It should be stated that there has been no change in the law and this merely represents HMRC’s current opinion on the position.

Bitcoin tax – CGT treatment

Taxpayers will be chargeable to CGT on the disposal of Bitcoin as follows:

  • Sale of the Bitcoin for tax;
  • An exchange of the Bitcoin for a different cryptoasset;
  • Using Bitcoin to pay for goods or services; and,
  • Gifting Bitcoin to another person.

The value attached to Bitcoin on each taxable event, detailed above, is the pound sterling value attributable to the cryptoasset at the point of the taxable event.

When computing the gain or a loss, the following are allowable costs:

  • The amount (in GBP) paid for the asset;
  • Any transaction fees paid before the transaction is added to a Blockchain;

However, the following will not be allowable in calculating whether there is a gain or a loss:

  • Any costs deducted against profits for Income Tax;
  • Costs for mining activities (for example equipment and electricity).

As is applicable for shares, s.104 pooling is applicable, which provides a methodological way to calculate taxable gains.

If a taxable disposal occurs and a loss is made, this may be relievable against any other gains made in the current year or carried forward to relieve future gains.

Bitcoin tax – Income Tax (“IT”) treatment

As stated above, the majority of Bitcoin disposals will be subject to CGT.

However, where IT does apply then it will take precedence over CGT.

There are a number of circumstances where IT will apply, these are:

  • Trading in bitcoin;
  • Mining;
  • Airdrops; and,
  • Cryptoassets received as earnings.

Further information on these areas can be found here.

Bitcoin tax – conclusion

This is a developing area of tax. However, with careful planning one can shelter the gains from Bitcoin just like any other asset. Indeed, the nature of these assets can be advantageous when it comes to structuring one’s holdings efficiently.

If you have any queries on Bitcoin tax or the taxation of cryptocurrency in general then please get in touch. Read more about Bitcoin below…

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