How to manage CGT on cryptoassets

Everyone from serial entrepreneurs to first-time investors pondered whether to dabble in the high risk/high reward (and often very misunderstood) world of crypto. 

However, the world of crypto is not for the faint-hearted. In its relatively short history, trends have shown the market is either boom or bust.

At the date of writing this article, for many it is currently bust. As investors lose confidence in the crypto sector, there are a number of tax implications for both individuals and companies to be aware of when it comes to crystallising losses. 

How to calculate your gains or losses

For most investors a disposal of a cryptoasset will mean a sale, however, investors should also be aware that exchanging cryptoassets (bitcoin to ethereum for example), using crypto assets as a form of payment for goods or services, or giving away cryptoassets may also be treated as disposals for tax purposes.

After recognising a disposal has been made, the first step is to calculate your gain or loss. When you dispose of the cryptoassets, the taxable gain is calculated by taking your sales proceeds (being the cash or market value of asset received) less your original cost for the asset less any transaction fees that you have paid.

If you are not selling your entire holding of a cryptoasset, then your original cost should be calculated by taking a relevant proportion of your asset cost on weighted average basis.

Investors may want to consider subscribing to a platform that tracks investment activity and calculates tax gains and losses automatically in real time.

So, in a simple example, if you bought 10 bitcoin for £10,000 and subsequently sold half of your holding for £3,000 you have made a loss for capital gains tax purposes of £2,000 on that initial sale. If you later sold the remaining holding for £6,500 you will have made a taxable gain on the second sale of £1,500.

Crypto investors should also be aware of the same day and 30-day bed and breakfasting rules when calculating their capital gains and losses. Where investors acquire the same class of cryptoasset within 30 days of a sale then the weighted average rules are disregarded to the extent that the newly acquired shares are matched against those sold.