The vast majority of cryptoasset investors who live in the UK are potentially liable to CGT on any profits or gains from any disposals that they may have made. CGT is only payable if total gains from all relevant assets are above the annual exempt amount (tax-free allowance), which is £12,300 in 2021-22.
In rare circumstances, revenue from cryptoassets may fall under income tax rules, for example if the investor is:
Actively ‘mining’ or ‘staking’;
‘Trading’, where HMRC deem it to be a job or profession; or
Getting paid for a job or service in cryptoassets or cryptocurrency.
HMRC may view all of these activities as forms of generating income, which makes them subject to income tax (up to 45 per cent depending on your income), not CGT.
When are disposals deemed to be made?
Individuals need to calculate their gain or loss when they dispose of their tokens to find out whether they need to pay CGT. A ‘disposal’ is a broad concept and includes:
Selling tokens for money.
Exchanging tokens for a different type of token.
Using tokens to pay for goods or services.
Giving away tokens to another person, unless it is a gift to their spouse or civil partner.
Do you pay tax on cryptoassets if you do not trade them?
No. In the eyes of HMRC, what matters is the gains you make when you sell your cryptoassets or make a disposal, not the amount you have invested so far. If there has been no disposal, there is no tax due.
There is no disposal if the individual retains beneficial ownership of the tokens throughout the transaction. For example, you might move tokens between two separate electronic wallets that you control and actual ownership of the tokens has remained the same.
How easy is it to value assets?
Many cryptoassets, such as bitcoin, are traded on exchanges that do not use pounds sterling, so the value of any gain or loss must be converted into pounds sterling on the self-assessment tax return.
If the transaction does not have a pounds-sterling value – for example, if bitcoin is exchanged for ether – an appropriate exchange rate must be established in order to convert the transaction to pounds sterling.
You should take reasonable care when arriving at an appropriate valuation for the transaction and use a consistent methodology. You should keep the details of the valuation methodology, as HMRC may ask you to provide them.
That is why keeping records is important. Cryptoasset exchanges can come and go, and an exchange may not keep records of transactions for long periods of time. Individuals are responsible for maintaining records as well as completing self-assessment tax returns.
