Capital Gains Tax on Cryptocurrency Activity


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.

As stated in one of our other video blogs, the taxation treatment of crypto depends on your activity rather than the fact that you are dealing in crypto per se.

It is the nature of that activity that will determine whether an individual owning crypto will be subject to Capital Gains tax or Income tax.

Of course, if you are operating through a company then you will be subject to Corporation tax regardless of whether it is of an income or capital nature.

As stated, there are no special rules for cryptocurrency.

As such, HMRC will apply existing tax rules in respect of crypto activity. One point to note is that HMRC have confirmed that they will treat any gains as foreign currency exchange gains and losses in the same fashion.

So, for this video, let’s concentrate on individuals holding crypto.

There are essentially three capital gains tax shoots that a holder of crypto might slide down

Firstly, where the crypto is held for personal use and expenditure

In principle, it seems under HMRC’s 2014 guidance that where a cryptocurrency was acquired for personal use, its disposal could ultimately be free of tax.

However, whether a particular case falls within this exemption will be fact sensitive.

Care should be taken, as this is a developing area of tax. As such, one should note that HMRC may have a different interpretation in what remains an area of tax law in its infancy.

Any filing position should be accompanied with a full disclosure.

Secondly, where the crypto holding was acquired speculatively

HMRC guidance also raises the possibility that transactions might be so speculative that they are not taxable.

Again, the specific facts and circumstances will need to support this position, as it is wholly plausible that HMRC may challenge this.

As such, to avoid any penalties being imposed it is important that one makes the appropriate disclosure within your tax return.

Thirdly, the holding might be acquired as an Investment with the profits being subject to Capital Gains regime.

In many ways, this is a default position where no special treatment applies.

For example, it applies where there is no justification that it is a ‘speculative’ or ‘personal use’ holding.

However, at the other end of the spectrum, the activities are not so organised to be classed as a venture in the nature of trade.

Here, gains will be subject to CGT at either 10% or 20% depending on the level of other income earned by the taxpayer in the year.

They should generally get the Annual Exemption which is £11,300 for 2017/18.

Companies would be subject to corporation tax (19%).

In terms of timing, gains or losses will arise in a number of different circumstances

Clearly, where one converts crypto into fiat currency – for example, Bitcoin in to sterling or dollars.

It will also be a disposal where one converts of one type of cryptocurrency in to another one eg Bitcoin into Ethereum

Finally, the other relevant time might be where one participates in an Initial Coin Offering or ICO.

If one has incurred a loss on crypto currency then, in theory, these losses should be available against other gains in the year or to be carried forward.

This is perhaps why HMRC has stated that there are transactions that are so speculative as not to be subject to tax. The flipside being they will deny losses on such transactions as well. This allows them to achieve a balance between raising tax from the profits but not committing themselves to allowing large loss claims.

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