A beginner’s guide to the taxation
of cryptocurrency in the UK

In the UK, current regulations state that you have to pay tax on cryptoassets but only when you dispose of them. Cryptocurrency is treated in the same way as other assets like shares or property, in that you will pay Capital Gains Tax on the assets. 

Do you have to pay Capital Gains Tax on every crypto transaction?

HMRC allow every UK tax payer a Capital Gains Allowance of £12,300. This means you will only have to pay tax on any capital gains you have over the allowance. The tax you pay will then be determined by your earnings and the income band you fall in (much like income tax). 

Is buying and selling crypto assets the same as gambling?

HMRC doesn’t consider the buying and selling of cryptoassets to be the same as gambling. The term ‘gambling’ is not defined in the Income Tax or Corporation Tax Acts, or in the Taxation of Chargeable Gains Act 1992.

How can you minimise the amount of tax you pay?

With most things in life, it always seems that everything is taxed! However, if we follow the rules around capital gains tax then there are ways to minimise your tax bill. 

Here’s a few examples of how you can do this:

Utilise your annual capital gains tax allowance
  • You only have to pay capital gains tax on your overall gains above your tax-free allowance (called the annual exempt amount).
  • The correct capital gains tax allowance for the 21/22 and 22/23 tax year Is £12,300
Using losses to reduce your gain
  • When you sell cryptocurrency for less than the cost of the asset, this will then create a capital loss. This capital loss can be deducted from other gains made within the same tax year or carried back to use against a prior gain. 
  • You can also forward the loss onto future gains and you actually don’t have to report the loss straight away, you can claim up to 4 years after the tax year they occurred in. 
  • Please note that if the disposal has arisen due to a disposal to a connected person, the actual sales price is not calculated in the same way.

The market value of the crypto on the date that it’s disposed of is what is used.

Allowable expenses

Under section 38 of the Taxation of Chargeable Gains Act (TCGA) 1992 allows for certain costs which can be deducted.

These are:

  • The consideration (in GBP) for what you originally paid for the asset
  • Transactions fees relating to the transaction being distributed on the ledger
  • Exchange fees related to the trade of cryptocurrency 
  • Cost relating to advertising for a purchaser or vendor
  • Professional costs to draw up a contract for the acquisition or disposal of the tokens
  • Costs of making a valuation or apportionment to be able to calculate gains or losses

Please be aware the following costs are not allowable costs in relation to capital gains tax:

  • Cost for mining activities. Equipment brought for mining may be an allowable deduction in a disposal of that equipment subject to relevant provisions such as the chattels exemption
  • Costs that have already been used as deductible expense for income tax

Buying and selling cryptocurrency at the best of times can feel like it’s a bit of a minefield and then throwing in the required tax calculations can just become too much for one brain, let alone time consuming.

Our crypto, accounting and tax experience will help you get all of your wallets, exchange accounts and transactions into one manageable system. Therefore, accurately being able to pool and calculate the gains that may arise and understand the tax implications of your activity. 

If you would like to discuss your crypto needs further then please don’t hesitate to contact us here.