The new coins from forks are generally taxable at the time of receipt. Also, the new coins/tokens may be subject to capital gains/losses at dispositions. The calculation of capital gains/losses is the same as mining only when you do not know the cost basis of the original token. According to HMRC guidance, costs must be split on a ‘just and reasonable basis’. As we conclude this comprehensive guide on crypto taxes in the UK, it’s evident that navigating this financial domain requires a deep understanding of its complexities.

  • If you have received coins or tokens due to a hardfork, then the assets acquired will not be subject to income tax.
  • Whether you’re paid in Bitcoin for a service you provide, or you’ve earned coins from mining or staking, these are all taxable events.
  • In the event that you sell your crypto at a profit, a higher cost basis can reduce your capital gains tax.
  • In these cases, you must retain your records for at least 15 months after the submission of your tax return.
  • In most cases, you will be paying trading fees when you are buying, selling, or trading cryptocurrency.

The capital gains are found by comparing the sales proceeds with your allowable costs. You should use the fair market value in GBP on the date that you made the transfer to calculate the sales proceeds. Special rules to prevent wash sales apply to cryptocurrencies in a similar way to shares of companies.

How to calculate capital gains UK

The £1,000 increase in value is considered a capital gain and could be subject to Capital Gains Tax. The amount of tax you’ll need to pay depends on the value of the cryptocurrency at the time you mined it. It’s important to record the market value in pounds sterling on the date you received the mining reward. Spending cryptocurrency on goods and services is considered a taxable event in the UK.

crypto taxes UK

This section delves into the details, looking at the specific rules and scenarios that are essential to be mindful of when calculating your crypto taxes. If you’re considered a trader by HMRC, your crypto activity could be classified as a trade and would then be subject to Income Tax rather than Capital Gains Tax. Income Tax rates can be higher than Capital Gains Tax rates, depending on your total taxable income, and there’s no equivalent of the Annual Exempt Amount.

How is margin trading of crypto taxed?

Luckily, HMRC has issued guidance on how to make a negligible value claim on the disposal of such assets which can be used to reduce your total capital gains. Yes, you should file crypto taxes if you have lost money on your crypto assets. HMRC require you to report any gains and losses from your crypto investments on your tax return. Any losses can reduce your taxable gains, and the excess can be carried forward to future tax years.

For a breakdown and explanation of each transaction type, visit our main classifications guide. To see which specific classifications are taxable in the UK, refer to our UK classifications guide. As you may imagine, manually capturing this data would be a logistical challenge.

The Bed & Breakfast Rule explained

Crypto taxation involves capital gains tax, income tax, gift tax, and inheritance tax, depending on the nature of the transaction. Due to the transferable nature of cryptocurrencies, exchanges don’t typically know the cost basis of your assets. This prevents them from being able to give you complete gains and losses reports. In the United Kingdom, cryptocurrency is subject to capital gains and income tax.

You can deduct certain allowable costs, including a proportion of the pooled cost of your tokens when working out your gain. You pay Capital Gains Tax when your gains from selling certain assets go over the tax-free allowance. Find out if you need to pay Capital Gains Tax when you sell or give away cryptoassets (like cryptocurrency or bitcoin). Generate your crypto gains, losses, and income reports in any currency.

However, they may be subject to Capital Gains Tax when sold, swapped, spent, or gifted (excluding gifting to a spouse). Any profit made from these actions will be subject to Capital Gains Tax. Some wallets, such as Phantom wallet on the Solana network, have a burn function in exchange for a nominal amount of SOL (your proceeds).

crypto taxes UK

This will be the case even if the acquisition of the crypto takes place after the sale — as long as they are both on the same day. The Same Day Rule and the Bed & Breakfasting Rule exist to eliminate the potential tax benefits of wash sales. Keep in mind, the HMRC requires you to keep records of all of your cryptocurrency transactions for at least a year after the Self Assessment deadline. Your tax rate is determined by how much income you receive in a given year.

Trading one cryptocurrency for another, including stablecoins, is a taxable event in the UK. However, it’s important to note that certain transactions involving cryptocurrencies may still be subject to VAT. When utilizing cryptocurrencies for payment of goods or services, no value-added tax (VAT) is imposed on the cryptocurrency itself. Nevertheless, the customary VAT regulations are applicable to the purchased goods or services. The UK has incorporated this ruling into its VAT legislation under Schedule 9 Group 5 of the VAT Act 1994. This means that when you purchase cryptocurrencies, you are not required to pay VAT on the coins or tokens themselves.

If someone has been widowed they may get a double nil-rate band of £650,000 because the first spouse can pass their nil rate band onto the surviving spouse. Let’s take an example of a crypto investor who buys Ethereum at multiple price points in a given year. You must group each type of token you own into pools and work out a pooled cost for each type.

If you’re using your personal computer that has spare capacity to mine tokens, you would typically be considered to be mining as an individual. The capital gain here is £15,000, and Joe is liable to pay tax on this gain based on his capital gains tax rate. If you fail to report crypto gains or losses to HMRC, you could face penalties and interest charges on any unpaid taxes.

Selling NFTs

In other situations, earning staking rewards is more likely subject to income tax. Receiving staking rewards in the form of new tokens in your wallet is likely considered ordinary income. If you choose to donate cryptocurrency to charity, you are entitled to Income Tax relief. If you are a higher-rate taxpayer, you’ll be able to claim the difference between your rate and the basic tax rate based on the fair market value of your crypto at the time it was donated. According to the HMRC, cryptocurrency received from airdrops may be considered income if it’s given in exchange for a product or service. Buying cryptocurrency with fiat currency like the British Pound is considered a non-taxable event.

The legal landscape is constantly changing, so it can be really difficult to stay on top of all the intricacies surrounding tax regulation. Reporting and payment deadlines vary based on individual circumstances and must be adhered to for compliance. Lending collateral to a DeFi protocol typically is not a taxable event.

Depending on the specifics, you might need to pay VAT on the purchase price of the NFT. This is similar to sales tax and is usually included how to avoid crypto taxes UK in the price you pay for the NFT. If you’re buying from an international seller, make sure to check if any additional VAT is due.

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