CGT and cryptocurrency

Author

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 tax 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 you 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.
  • 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 seemed under HMRC’s 2014 guidancethat where a cryptocurrency was acquired for personal use, its disposal could ultimately be free of tax.
  • However, HMRC has feverishly rowed back from this position in more recent guidance!
  • Secondly, where the crypto holding was acquired speculatively
  • Again, earlier HMRC guidance also raised the possibility that transactions might be so speculative that they are not taxable. But once again, HMRC has rowed back from this position.
  • Finally, and most commonly, the holding will be considered to be acquired be acquired as an Investment with the profits being subject to Capital Gains regime.
  • 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 that applies for the relevant year.
  • Companies, of course, would be subject to corporation tax at 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 or other event.

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