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.
In addition to the acquisition cost of the cryptoasset being an allowable cost to deduct in the capital gains calculation, there are also incidental costs of purchase and disposal that can be deducted.
HMRC states that incidental allowable costs include:
transaction fees paid before the transaction is added to a blockchain
advertising for a purchaser or a vendor
professional costs to draw up a contract for the acquisition or disposal of the cryptoassets
costs of making a valuation or apportionment to be able to calculate gains or losses
There remains a great deal of uncertainty regarding which fees can be deducted. The fees set out below are all incurred before the transaction is added to the blockchain, but it is not clear if they would be considered by HMRC to be transaction fees in connection with the acquisition and disposal of cryptoassets; and therefore allowable incidental costs of acquisition or disposal.
Below is an example to highlight the different fees that could be paid. As it is not clear if these costs can be deducted, it will be up to the individual to decide whether or not to deduct them in their capital gains computation. If HMRC challenge the Tax Return and successfully argue that these costs are not deductible, additional tax, interest and penalties will be payable to HMRC.
Example – buy 10 REP with GBP on a European exchange, convert to BTC then sell:
Convert Sterling to Euros – FX fee and/or FX exchange rate commission paid.
Transfer Euros to the Exchange - deposit fee incurred from the Exchange Wallet.
Place order to buy 10 REP with Euros – fee charged by Exchange for every fill of the order (e.g. may be fulfilled with 200 purchases).
Place order to sell 10 REP for BTC (let’s say they got nervous about holding REP) – fee charged by Exchange for every fill of the order (e.g. may be fulfilled with 200 purchases).
Transfer BTC from Exchange to Wallet to hold as investment – blockchain fee charged and the Exchange charges a withdrawal fee.
Transfer BTC from Wallet to Exchange (decided to sell for fiat) – blockchain withdrawal fee incurred from Wallet.
BTC added to Exchange – deposit fee charged by Exchange.
Place an order to sell 10 BTC – fee charged by Exchange for every fill of the order (e.g. may be fulfilled with 200 disposals).
Transfer the Euros received for the Bitcoin from the Exchange into the taxpayer’s UK bank account.
Withdrawal fee charged by the Exchange and a commission fee charged by the UK bank for receiving Euros into a Sterling account, by using a less favourable exchange rate with an effective fee built in.
As HMRC’s guidance is currently unclear, we would advise speaking to a qualified tax professional before submitting your tax return.
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