Cryptocurrency profits and tax in the UK?

[suky321]

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.

[1715505531]

1715505531

[1715505531]

1715505531

[1715505531]

1715505531

[unbeaten]

You don't have to pay tax when you trade one cryptocurrency for another

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:

Disposing of an asset
Disposing of an asset includes:

• selling it
  
• giving it away as a gift, or transferring it to someone else
  
• swapping it for something else
  

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

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%.

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.

[suky321]

You don't have to pay tax when you trade one cryptocurrency for another

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:

Disposing of an asset
Disposing of an asset includes:

• selling it
  
• giving it away as a gift, or transferring it to someone else
  
• swapping it for something else
  

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

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%.

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.

[Jet Cash]

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.

[Nelson_Smithers]

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 

[suky321]

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 

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.

[Nelson_Smithers]

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 

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.

[thedec4]

This is such a good post! Saving this for later

[pescadorloco69]

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

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.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/ 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
-
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.