For most individuals, disposals of cryptoassets will be subject to CGT. If an individual’s total capital gains for a tax year are below £12,300 (currently), they will not pay any CGT as the gains will be covered by their annual CGT exemption.
If a loss is calculated on the disposal, this loss will be a capital loss. Capital losses are automatically offset against any capital gains made in the same tax year. This is regardless of whether your capital gains are below the annual CGT exemption.
CGT is currently charged at 10 per cent on capital gains if your combined income and taxable gains are less than £50,270. CGT is charged at 20 per cent for any excess above this figure. Utilising capital losses is therefore potentially worth a 20 per cent tax saving.
If you do not have any capital gains in the same tax year as your capital loss – or your capital losses exceed your capital gains – then the excess capital losses will be carried forward and utilised against your first available taxable capital gains (after the use of your annual CGT exemption).
Investors who routinely file self-assessment tax returns will include their gain and losses on the relevant tax return. Any taxes will be payable on January 31 following the year end – ie CGT due for the year ended April 5 2022 are payable by January 31 2023.
Investors who do not file tax returns should register for self-assessment in good time to facilitate a filing by the January 31 deadline to avoid penalties.
Capital losses can be claimed up to four years from the end of the tax year in which the loss occurred. Therefore, where losses have not previously been claimed, there may be an opportunity to now make a claim.
Capital losses do not expire, therefore it may be worth considering crystallising crypto losses now if you anticipate future capital gains elsewhere.
Investors hoping to benefit from losses will need to make sure that they do not purchase the same class of cryptoasset within 30 days of the crystallising the loss. Failure to observe this would trigger the 30-day matching rules as noted above.
It is worth noting that if you make capital gains in the tax year prior to crystallising capital losses then the losses cannot be carried back against prior year gains.
With the recent trend in prices this may catch out many an investor who may find themselves with tax liabilities on gains made in earlier years but who have subsequently reinvested the proceeds and made a loss. Special rules may allow investors in this position to make a ‘negligible value’ claim.