Disclaimer: This article is intended as an informative piece. This is not accounting or tax advice. Please speak to a qualified tax professional about your specific circumstances before acting upon any of the information in this article.
If you are classified as an investor rather than trader by HMRC (as the majority of cryptocurrency users are), the following rules apply:
If the net gain (after the offset of losses in the year) is more than the annual capital gains tax (CGT) exemption (currently £3,000 in 2024/25), the excess is subject to capital gains tax for a UK individual taxpayer; unless it can be reduced by capital losses brought forwards from a prior tax year
Brought forward losses can only be used if they have been declared to HMRC previously on a Tax Return or by letter
The exemption is across all capital gains in the tax year, so if you had gains or losses on other assets they should be taken into consideration. If the net gain is less than the annual CGT exemption, no CGT is payable
If you are classed as a trader by HMRC, income tax laws would apply:
The capital gains regime for buying and selling cryptoassets is not applicable. Profits are self-employed business profits, subject to income tax and national insurance.
Allowable trading expenses (under normal income tax rules for businesses) are deducted to calculate a trading profit or loss.
The exemption is £12,570 for the 2024/25 tax year. Other income should also be considered.
There is a ‘Trading Allowance’ of £1,000. If the total trading and miscellaneous income for a tax year is less than £1,000 and the individual has no other self-employment, there is no tax to pay on this income and there is nothing to declare to HMRC
You should take into account how capital gains is calculated for cryptocurrencies. It isn’t solely how much you have cashed out to fiat currencies. For example, if you purchased one Bitcoin for £1000 and traded it for Ethereum tokens when bitcoin was £14000, you would have the realised a gain of £13,000 on your bitcoin purchase – therefore you should calculate all of your taxable gains and losses and determine if you are over the exemption.
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