I bought USDT with my GBP. Do i need to add a GBP to USDT trade to start off?
Not necessarily. As Andreas_CoinTracking mentioned earlier they recommend the "Overall based" method.
Personally I like the "Exchanged based" method because I want to have everything recorded as it actually happened in real life.
You must decide how you prefer it, but you can easily switch between the two methods by adding or removing any fiat transactions.
Just record it one way, make a backup (Accounts > Trades Backup) and then add/remove the fiat transactions and compare the two outcomes.
I've read this multiple times and still don't get it. Would I have to pay capital gains on my original investment. If so, seems a bit harsh and I'm guessing that's why cointracking doesn't recommend doing it this way.
If you just buy and hold cryptocurrency, then it's usually neither taxable nor reportable.
Only if you later sell/exchange or pay for something with cryptocurrency you usually have to report any gains/losses and consequently may have to pay taxes on it or are able to write off losses.
Usually with any sale/exchange of cryptocurrency the price you sell at will be compared with your original cost basis and the difference is considered a capital gain/loss for tax purposed.
Since stablecoins are cryptocurrency as well, they are usually treated the same.
Most of them
do actually fluctuate a little bit, e.g. a Tether is not at all times exactly worth 1 USD, but sometimes a little bit more and sometimes a little bit less.
So depending on how much Tether you sell, your capital gain/loss could be higher or lower than zero.
For example, if you bought 200,000 USDT at a price of 0.9996 USD/USDT and later sold it for 1.0081 USD/USDT, then you will have realized a gain of 1,700 USD.
So it's not nothing.^^
But even with synthetic stablecoins that are guaranteed not to fluctuate it still might be required to report their sale/exchange.
The rule is usually relatively simple:
If you
dispose of ANY cryptocurrency, then any appreciation or depreciation in value (of those disposed coins) is usually taxable, depending on the particular laws of your country.
Disposal is any time you sell, exchange or purchase something with cryptocurrency, i.e. when you get rid of it and get something in return.
If you get more from its disposal than what you initially paid for it, then you made a gain (or vice versa: a loss).
Coming back to my capital gains example you last quoted:
If you initially bought 8,000 USDT with fiat (be that USD or GBP), then the amount of fiat you paid for it is the cost basis for those Tether.
Later when you use those USDT to buy ETH, then you're essentially doing two things (in the eyes of most country's tax authorities):
- You dispose of USDT at the current market price
- You then buy ETH with those proceeds
Therefore when you use USDT to buy ETH it doesn't matter if it's a stablecoin or not, it only matters if you have a gain/loss from your disposal of those USDT.
If you have a gain, you usually pay taxes on it.
If you have a loss, then you can usually use that to reduce your tax burden.
If you have neither, then you usually still have to report that.
But again, it all depends on the particulars of your country's tax laws.
For example, in Germany you don't pay taxes on any disposal of cryptocurrency for coins that were held for longer than a year. You don't even have to report their sale.
In the US you have to report everything and
do pay taxes even on coins you held long-term (i.e. > 1 year), albeit at a reduced rate.
I'm not familiar with the particulars of the HMRC, so your mileage may vary. (Or should I say: your kilometres may vary^^).
tl;dr- You can always calculate a factual capital gains/loss that happens whenever the disposal-value (e.g. when selling/exchanging/paying) is different than the acquisition-value (e.g. at purchase).
- Whether or not you have to report and/or pay taxes on those gains (or are able to write off any losses) depends on your particular country's tax laws.
- Stablecoins are usually considered the same as any other cryptocurrency, and most stablecoins can and do fluctuate in value just the same, even if only very little.
- Even synthetic stablecoins which are 100% guaranteed to not fluctuate are still usually considered cryptocurrencies and thus would have to be treated the same.
And whenever I say "usually" it means that, you guessed it, it depends on the country's tax laws.^^
Would you be open to me paying you to get to the bottom of this via private message?
Thanks for the offer, but I have to politely refuse.
I'm not a tax expert and know nothing about the HMRC's specific laws/regulations.
And though you might be ok with that, I wouldn't feel comfortable taking money for that.
I also don't currently have a lot of free time at the moment anyways.
It's enough for squeezing in a post here or there, but not for a dedicated one-on-one via PMs, my apologies.
In your place I would continue to play around with transactions on a test-account to see how it changes the results.
One hint I would give that could make your analysis easier: Set the purchase- and sale-values for each trade manually!
That is, when you enter a transaction then below the input field for the price is a button "Edit Asset value".
If you click that then you can set the value(s) yourself instead of letting Cointracking determine the historical value.
This way, reports are created from simpler numbers which should make analysis easier.
Hope it helps, good luck!
