You might be wondering if you’re liable to pay taxes on bitcoins and other cryptocurrencies you own while in the UK. Cryptos may not be like regular taxable assets such as fiat and real estate. However, specific regulations are imposed in the UK regarding their taxable values.
Learn more about crypto in the UK, the regulating body for taxes, how they view crypto, and what guidelines for cryptocurrency tax exist in this brief article.
UK Tax Guidance Regulator
Her Majesty’s Revenue and Customs (HMRC) is the government agency tasked to collect taxes and administer other regulations related to national minimum wage and national insurance numbers. HMRC is also responsible for crafting guidelines on tax matters for all kinds of assets, including cryptocurrencies.
How Does the HMRC View Cryptocurrencies?
Cryptocurrencies such as bitcoins have been in existence since 2009. However, it wasn’t until these coins soared in value that regulatory bodies worldwide noticed them. As such, HMRC published its tax guidelines on cryptocurrencies in December 2018. It was updated in November and December 2019 to clear out the fog on airdrops and mining topics.
The HMRC views cryptocurrencies not as money but as “cryptoassets”. They define these as cryptographically-created and secured digital assets representing contractual rights or values. Cryptoassets can be stored, transferred, and traded electronically.
Are Bitcoins and Other Cryptocurrencies Taxable?
Yes, they are. Cryptocurrencies obtained (not bought), sold, and traded by UK residents are taxable, just like other traditional assets such as fiat money, real estate, and properties. The HMRC clarifies that individuals using and holding cryptoassets will be taxed according to their activities and their purposes of using the crypto tokens.
Basic UK Crypto Tax Guidelines
Now, let’s have a quick overview of the basic taxation guidelines on bitcoins and other cryptocurrencies as mandated by the HMRC. Note that most of these rules apply to individuals:
- Most crypto holders use their coins as a personal investment. They need to pay Capital Gains Tax (CGT) on their gains and losses.
- There’s no need to pay taxes when buying crypto in the UK (for instance, GBP to BTC). Still, it is advised to keep records of your transactions.
- Any cryptocurrency sale makes you liable to pay CGT.
- Crypto to crypto trades, as well as crypto to stable coin trades, are subject to CGT.
- Mining as a hobby should be declared under Miscellaneous Income and shall be subjected to CGT when disposed of.
- Income from mining as a business shall be added to trading profits. You’ll pay income tax and National Insurance Contribution for this.
- Cryptos gained from hard forks are not subjected to income tax.
- Airdrops gained from service must be declared under Miscellaneous Income for individuals and Trading Profits for businesses. Income tax must be paid.
- Disposed of cryptos originally received as airdrops are subjected to CGT at the time of disposal.
Crypto trading as a business has more complex rules. You may need to pay more taxes apart from CGT, such as Stamp Duties, Income Tax, Corporation Tax, and VAT. But note that the HMRC may decide to treat your transactions as a business if you have an activity rate comparable to a company.
We mentioned that updates to the original December 2018 HMRC cryptoassets tax guidelines were made in 2019. But the HMRC isn’t keen on stopping their hunt for cryptocurrency tax avoiders.
In October 2020, the HMRC successfully requested Coinbase to provide them with information on UK customers who transacted on the platform with more than £5000 worth of cryptocurrencies. These transactions were made from 2017 to 2019.
You need to keep track of your transactions, use a dedicated crypto tax tool, or check-in with tax professionals to set your UK crypto taxes straight. That way, you can minimise your liabilities with the right planning and pay your dues to the HMRC properly.
In a Nutshell
Cryptocurrencies are taxed in the UK, subject to the guidelines set by the HMRC. The government agency has been actively looking into UK cryptocurrency holders and investors to ensure that they’re paying their dues correctly.
We’ve outlined a few basic HMRC guidelines on cryptoassets taxation in this post. But suppose you’re a high-volume trader or an enthusiast who feels lost in checking and computing your crypto tax dues. In that case, we recommend using a useful crypto tax tool like ACCOINTING.com. You can also consult with tax professionals and accountants for hassle-free crypto tax reporting in the UK.