Bitcoin Forum

I decided to get to the bottom of how much tax you have to pay for selling crypto currencies if you live in the UK...

You don't have to pay tax when you buy
You don't have to pay tax on it if it increases in value and you just hold it in crypto
You don't have to pay tax when you trade one cryptocurrency for another
You have to pay tax on the "profit" made when you sell it back to GBP
The tax bracket this comes under is capital gains tax (CGT), it's not the same rates as property though
In one financial year the first £11,300 profit in capital gains on cryptocurrency is tax free
The next £8,500 comes in the 10% tax bracket, anything over that is taxed at 20%
So you could in theory sell £19,800 with of Bitcoin every year and only pay £850 in CGT

What I really want to know and can't find the answer to online is...

What are the tax implications if you buy a car direct with Bitcoin? You are not technically making profit on the sale of an asset, you are swapping an asset with the value of x for a different asset with the value of x

You probably have to pay tax based on the value of the car.

It's more interesting if you buy a Britannia gold coin. There is no VAT or CGT on that, and it has a nominal value of £100, but you will probably have to pay around £1,000 for one.
https://www.royalmintbullion.com/Products/Britannia/Gold/UKB18GOS

The answer to your question directly depends on how and where you will change your bitcoins to buy a car or something else. Now there are a large number of independent exchangers and it is always possible to negotiate a personal meeting with the seller about the method of payment. ;)

Isn't it a little bit obvious? You can not pay taxes for seeing the price going up while you are holding, it would be irrational.

You are OBLIGATED to pay taxes when you withdraw those bitcoins, if you cash them all by your bank, at the moment that you get called by the bank to justify why and how did you got those funds.


Something like that is happening on my country, when you want to cash out, the bank is going to call you to ask you how did you got those bitcoins.

good question ... but I think it is better looking for a profissional legal advice, a good lawyer, just to be in the safe side ...  

What’s the difference between tax avoidance and evasion, is tax avoidance legal and how do the schemes work?
https://www.thesun.co.uk/money/4851248/difference-between-tax-avoidance-evasion-legal-schemes/

if powerful people can do it ...

overseas tax havens ( The BBC has revealed that the Queen's estate has used overseas tax havens )
http://www.bbc.co.uk/news/uk-41883472

bitcoin is somesort of 'cypherpunks city'

If the buyer is willing to accept bitcoins directly and you swap the Bitcoins for the car without touching GBP do you still have to pay capital gains tax?

Wow, great research! We need to do this for other major countries!


Do you have to pay tax if you exchange Bitcoin for Ethereum (for example)? The funds are still in crypto but they've been traded for a different crypto.


This is incredible!



Would the tax be part of the final sales price for the car? So you don't incur some additional tax liability because you're choosing to pay for the car with crypto.

I don't think you have to pay any tax if you trade one cryptocurrency for another


Yeah definitely! I have been to see three different accountants in the UK and two of them had never heard of cryptocurrencies and one of them had heard of it but didn't know the tax implications of it. If you don't declare the capital gains tax and get caught it could cost you much more than it would if you had just paid the tax, so more research is needed.

Just need to understand the tax implications of buying things direct with Bitcoin, if you can legally avoid converting to GBP and can avoid paying CGT it is definitely worth doing. Just can't find anyone who knows the answer for sure.

This is my understanding of it.

When selling your bitcoins in the UK you pay capital gains tax on the profit.  If you're a basic rate tax payer (i.e. you earn less than £45,000 per year), then you pay 10% CGT.

Example:

You buy 10 Bitcoins for £5 each many years ago.

You then sell 3 of these Bitcoins for £45,000.

You then deduct the cost of the Bitcoins £45,000 - £15 = £44985

You're allowed £11,300 tax free, so 44985 - £11,300 = £33685

You pay 10% tax on £33685 = £3368.50 tax.

Theoretically, if you had a partner who you trust and also is a basic rate tax payer, then they could also sell the above amount and pay 10% CGT.

In total you could sell around £90,000 per year between you both and pay 10% tax.  If you're patient enough do this every year, rather than selling all at once.

I'm happy to be corrected if anyone now differently.

That is the same conclusion I came to regarding selling your Bitcoins for cash.

The question was though, what if you buy a car directly with Bitcoin and no conversion to GBP is done?

That really doesn't matter as HMRC will just estimate the value of the car. They do the same thing for income tax in "payment in kind". If your employer gives perks that are not money then the value of them is estimated for tax calculation.

So you would still be liable for CGT in the case of buying something like a car with Bitcoin. The one thing you didn't mention about this is that CGT is only due on the gain not the full value of the Bitcoin, so if you bought Bitcoin recently then the gain would be far less than if you were holding it from a year ago or more.

In my opinion it does not matter what you do with the money. You first have to work out what the Capital Gain is on the BTC

and then you can buy whatever asset you want. If you earned say $2000 worth of BTC or you traded and your profit was

$2000, then you have to pay Capital Gain on that first and then you can buy the car or whatever you want to buy.  ???

Also remember that you are paying VAT on that purchase.  :D

Hello friends, I am a new member but I wanted to declare my ideas. If you have a profit from Cryptocurrency and do not want to pay tax;
1-Do not trade through bank accounts, you can be taxed by the state even after many years.
2-When purchasing a product, make a payment with bitcoin and altcoin.
3-You can trade face to face bitcoin and altcoin in your area.
4-If you want to return cash directly with minimum commission, buy gold by paying with bitcoin and altcoin over 24 carat gold selling sites and convert gold to cash at a place you want. the important point is that the gold you receive is either LBMA or IRA certified.


I apologize for the bad english speaking  :-\

My understanding is that if you use bitcoin or other encryption currency directly and currency trading, so it is necessary to pay taxes. Now, the tax standard of each country is different. In recent days, there are several news about tax collection in some countries. It makes me feel that the price of bitcoin will decrease a little. Pay attention to the risk.

As long as the car dealership is registered to to take taxes from every purchase, then they have the right to take taxes from every car sold irrespective of the payment method used for the purchase.

Could you share your sources for this please? I've been trying to figure out the same myself, and my understanding was that if swapping BTC for any other asset (Crypto included), then it would be subject to capital gains as per:


Source: https://www.gov.uk/capital-gains-tax

I think this was the most satisfying response on the question so far :)

Whether you convert to GBP or buy a car if you are going to do it legally you should pay CGT

I do not have a source but technically If you were to do it legit and pay CGT there would be two methods of doing it...

Option 1 - You buy a Bitcoin for £1000, it doubles in value and is now worth £2000. With that £2000 with of Bitcoin to exchange for £2000 worth of Ethereum, that soon doubles and you have £4000 worth. You then sell your £4000 worth of Ethereum for GBP, and pay CTG on the £3000 profit you made.

Option 2 - You buy a Bitcoin for £1000, it doubles in value and is now worth £2000. If you want to declare the CTG on the Bitcoin at the point of purchasing the £2000 worth for Ethereum it will technically be a nightmare, especially if you want to pay off the CTG with the Bitcoin profit. If you worked out that on the £1000 profit you had to pay £100 CGT, it will also cost you money to convert the Bitcoin to fiat on the exchange, and might cost you again to bank transfer that fiat back into your bank to pay the CGT, lets just assume both of these charges are £25 each. So we use £150 worth of the Bitcoin profit to get £100 into your Halifax bank to pay the CGT. Now we are left with £1850 in Bitcoin, we now buy the £1850 worth of Ethereum. This then doubles in value, and we now have £3700 worth, we convert that back to GBP and pay the CGT on the Ethereum profit only which was £1850.

As you can see you loose out big time if you use option 2, both ways I would say are legal as long as you eventually pay the CGT. Imagine if you were day trading crypto's and paying CGT on every conversion from Bitcoin to Ripple and Ripple to Bitcoin and Bitcoin to Steem. It would be absolutely crippling and you would not make any profit especially if each time meant converting some of that to fiat and bank transferring it out to pay CGT.

I think the initial cost that you paid at the very beginning when you first bought the crypto i.e. £1000 should be the principal amount from which you deduct your gains. 

If you had no income in a tax year, i.e. making you a basic rate tax payer, then you can legally sell £44800 of crypto, £11300 of that is taxed at 0%, and £33500 is taxed at 10%.  Anything above £44800 per year (after principal amount and fees etc deducted) would attract a CGT tax rate of 20%.

So for a sale in the above scenario of £44800, you would pay £3350 tax, leaving £41450 profit to do as you please, this is the legal way of doing it for peace of mind.  But this requires patience of waiting for each tax year to end, then selling another £44800 each year (dependent on what the tax rate and allowance is for that tax year).  If you have a partner who also has no other income, then you could sell £89600 each year, and pay £6700 CGT tax at 10%.

If you conduct the buying and selling between a peer by peer transaction for example you conduct buying of seconr  hand car then there is no tax that can be imposed on your transaction but if you buy a brand new on a legitimate car seller then you could not avoid getting tax to that.

Just another thought to add to this discussion.  If you're a resident of Germany and have held your Bitcoins for more than a year, you pay no tax.  Not sure how this would apply to UK citizens if they decide to apply for German residency, then live there for more than a year, then sell all their Bitcoins then move back to UK.

Sounds pretty awesome, might be worth cashing some out at the end of 2018 for sure. No doubt the CGT on crypto's will change in future and probably for the worse.

Remember though the tax year in the UK is from 6 April to 5 April.

I suspect that in the end, it will come down to the way that HMRC can assess a disposal. If you buy a car from a dealer, then he has to account for the disposal of the car, and pay tax on the profit he makes. If you buy a car privately, then HMRC will have problems in establishing a value, and they probably won't even know about the sale.

You can get roll over relief is you exchange one crypto for another.

Apologies if it’s already been covered but..:

1) If during the tax year but made less than the 11,300 K pounds profit, do you need to declare anything at all, or just keep ssshtum, since it’s below the theshold.

2)If you’re married, i believe CGT allowance is 22,220 pounds.

3)what happens if you reinvest some of the profit to then re-purchase more coins or alts, at a later stage.
If you invest only once and HODL, then it’s a lot easier to determine the true profit, but if you’re trading, unless you log every single transaction as a P/L it would be easy to get lost.

The government web site doesn’t really help and I suspect a lot of accountants won’t yet be experienced in the world of taxation and crypto.

Any err.. tax efficient tips from anyone qualified would be welcome  ;D

If you're married, then it's 11,300 x 2 = 22600 Tax free allowance for CGT.

If you're trading, e.g. day trading, then that would fall into Income Tax rather than CGT.  CGT is for things like shares etc, speculation. Crypto is a grey area, as HMRC don't class it as a currency but an asset, it could also be classed at gambling technically which would mean no tax, but they take each on a case by case basis.

Thanks Suky, exactly, it’s a grey area.

This is such a good post! Saving this for later

I think there is alot of confusion over tax of crypto in the uk.

I have looked into this and I hope some will find this helpful as in the future when some people declare there profits they are going to be asked why they did not declare it before and may face the consequences.

HMRC class cryptocurrency investing the same as foreign exchange and therefore recognise it as a currency not an asset as some are saying.

https://www.gov.uk/government/publications/revenue-and-customs-brief-9-2014-bitcoin-and-other-cryptocurrencies/revenue-and-customs-brief-9-2014-bitcoin-and-other-cryptocurrencies (https://www.gov.uk/government/publications/revenue-and-customs-brief-9-2014-bitcoin-and-other-cryptocurrencies/revenue-and-customs-brief-9-2014-bitcoin-and-other-cryptocurrencies)

The information I am about to share has been gathered by speaking to HMRC direct and I have spoken to 3 accountants one of which was willing to look after all my crypto accounting for a fee, I decided to do it myself.

Here some accountancy firms that understand crypto: (I do not use them but have spoken to butler).

www.butler-co.co.uk  (http://www.butler-co.co.uk)
http://www.saffery.com/ (http://www.saffery.com/)


It took 4 attempts to get someone at HMRC who knew what they were talking about regarding crypto.

OK, I was always under the understanding that you declare your profits when you go back to GBP from bitcoin but this is not the case.

If you buy 1 bitcoin for £2000 (be nice today wouldnt it) and purchase another coin lets say ltc and when you did so btc had jumped to £2500. You have made £500 profit when you divest from btc and purchase ltc.

let say you then sold your ltc back to BTC and your £2500 worth of ltc was now worth £3000 you have now made another £500 profit, you now have gone from a £2000 investment in btc to ltc and back to btc and have made a £1000 profit (subject to capital gains tax at the end of the year.

But hang on now BTC has crashed back down and your holding of btc is now worth £2000 you decide LTC may be better again and buy £2000 worth of ltc with your btc and now have made a loss of £1000 which has wipe out your profit you had made. Now you have no CGT to pay.

You do not have to go back to GBP for tax to be payable to the HMRC at the end of the year.

So lets say you logged all your trades, I use https://cointracking.info/ (https://cointracking.info/) and highly recommend it, I use it for all my crypto accounting including trading,mining and proof of stake coins. Just import the csv of data from wallets opr exchanges etc and bingo cointracking fills the gaps in price to GBP etc. Cointracking get the data from coinmarketcap.com

At the end of the year cointracking can output a tax report showing your gains after losses are taken off.

So lets break it down to what happens at the end of the year.

The first £11,300 of capital gains is not taxed.

Now your current income has to be taken into consideration as the 45k threshold will reflect how much capital gains will be taxed at 10%

Lets say you earn £25k income and paid your due taxes now you have £20k left of your tax threshold left.
Lets say your capital gains for the year was £60k

its calculated like this

£60,000 - £11.300 tax free amount = £48,700
10% CGT - £20,000 = £2,000
20%CGT - £28,700 = £5,740

Total CGT payable to HMRC £7,740

Over the £45k threshold you are taxed at 20% up to unlimited so in my example @ £60k would be the same even if it was £10,000,000
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If you are mining HMRC class this as the creation of coins and is therefore liable to income tax on the value of the coins at the time you received it, this is the same for POS coins as it is the creation of coins. Then subject to capital gains tax for profits when sold or losses as the case may be.

I hope this helps people avoid a nasty surprise when they thought they had done so well with the profit going back to GBP and declaring it.