UK cryptocurrency tax guide

UK cryptocurrency tax guide, image of bitcoins | Crunch

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    Whether you’re new to cryptocurrency or a veteran, crypto taxes are a headache. We've teamed up with Koinly to take the hassle out of calculating your crypto taxes - and understanding the rules. Here, Koinly explains the lie of the land.

    Did you know that cryptocurrency in the UK doesn’t have its own tax treatment? Instead, crypto is taxed subject to income tax or capital gains tax - or both in some instances! The tax you’ll pay on your crypto investments depends on a variety of factors, including the type of transaction, how HMRC views it and the amount you earn in regular income.

    It's well worth noting that this guide only refers to crypto tax rates for individual investors, not those trading as a business. You can find specific guidance on crypto tax rates for businesses in the UK here.

    When is crypto taxed as income in the UK?

    The HMRC guidance on when crypto is considered income is very clear. Individual investors will need to pay income tax and National Insurance Contributions on:

    You’ll also may need to pay Capital Gains Tax if you later dispose of any crypto assets received through any of the means above. We’ll get back to that later!

    How much income tax will you pay?

    Your crypto tax rate for ‘earned’ crypto depends on the income tax band you fall into. Your crypto income tax rate will be the same as the highest tax band you fall into, and is considered miscellaneous income. You’ll pay anywhere between 0% to 45% in tax.

    Band Taxable income Tax rate
    Personal allowance Up to £12,570 0%
    Basic rate £12,571 - £50,270 20%
    Higher rate £50,271 - £150,000 40%
    Additional rate £150,000+ 45%

    How to calculate your in crypto income tax

    It’s easy to work out how much you owe in crypto income. Follow these steps:

    • Identify your Income Tax Band.
    • Identify any crypto assets considered to be income by the HMRC.
    • Calculate the Fair Market Value (FMV)  of these assets in GBP on the day you received them. Koinly’s crypto tax calculator does this for you.
    • Add up the total value additional income from crypto.
    • Add your additional income to your regular income.
    • Refer to your Income Tax Band  and multiply your total income by your tax rate.

    When is crypto taxed as a capital gain in the UK?

    Because crypto is viewed as an asset in the UK, when you sell, swap or spend it, this is seen as a disposal of an asset and subject to Capital Gains Tax.

    Not all of your disposed assets are subject to Capital Gains Tax, only the perceived profit from disposing of it. For example:

    • Profits from selling crypto for fiat currency, for example GBP.
    • Profits from swapping crypto with crypto.
    • Perceived profits made from gifting crypto (excluding to spouse).
    • Using cryptocurrency to purchase goods and services.

    Short and long-term crypto gains

    Unlike in many other countries, the HMRC treats short and long term gains the same. So you’ll pay the same crypto tax rate regardless whether you hold it for a few months or a few years.

    Unlike in many other countries, the HMRC treats short and long term gains the same. So you’ll pay the same crypto tax rate regardless whether you hold it for a few months or a few years.

    Capital gains tax break

    Everyone in the UK gets a Capital Gains Tax allowance. It's also known as the Annual Exempt Amount and it's no small sum of £12,300 per person, per year. If you have less than £12,300 in crypto gains, you won’t pay any capital gains tax and you don’t need to report this to the HMRC.

    How much capital gains tax will you pay?

    The amount of Capital Gains Tax you’ll pay on your crypto gains depends on your regular income and the Income Tax Band you fall into.

    Capital Gains Tax Rate Income Tax Band
    10% Basic Rate Income Band (up to £50,270)
    20% Higher Rate Income Band (up to £150,000)
    20% Additional Rate Income Band (more than £150,000)

    How to calculate your in crypto capital gains tax

    It's easy to work out your crypto tax rate for capital gains. Just follow these steps:

    1. Identify your Income Tax Band.
    2. Work out your total taxable gains from crypto investments. Koinly does this for you.
    3. Subtract your Capital Gains Tax Allowance (£12,300) from your total taxable gains.
    4. Add the remaining amount to your taxable income.
    5. If this is within the basic income tax band, you'll pay 10% on your capital gains from crypto. If this is in the higher rate or additional rate tax band, you'll pay 20% on your capital gains from crypto.

    Made a loss? You can report losses on a chargeable asset to HMRC to reduce your total taxable gains. The time limit for claiming capital losses is within four years of the end of the tax year in which the capital loss was realised.

    Are any crypto transactions exempt from tax in the UK?

    Yes! There are some crypto transactions that are not subject to income or capital gains tax in the UK. These include:

    • Buying crypto with fiat currency like GBP.
    • HODLing crypto.
    • Transferring crypto between your own wallets.
    • Gifting crypto to a spouse.

    The last transaction of gifting crypto to a spouse in particular is important for UK crypto investors. You can use this to optimise your tax position by making the most of your personal allowance and individual Capital Gains Tax allowance, so your household will pay less in Capital Gains Tax overall.

    When to file UK crypto taxes

    The UK tax deadline is the 31st of January 2022. You need to report any income from crypto or capital gains from crypto in your self assessment tax return by this date.

    Ideally, you’ll want to submit your tax return before this point as you also need to pay any taxes due by midnight on the 31st January 2022.

    How to file UK crypto taxes

    You'll need to keep good records of your crypto transactions including the FMV on the day you purchased, the FMV on the day you sold and any subsequent capital profits or losses, as well as any crypto 'earnings' perceived as income.

    You submit these records to the HMRC, who calculate what you owe based on what you report.

    Koinly can help you do all of this by identifying the different types of tax applicable to your crypto transactions, calculating your crypto taxes and generating specific tax reports, like your HMRC Capital Gains Summary.

    Sort your UK crypto taxes fast with Koinly and Crunch. Crunch members save 40% on all Koinly Plans!