How to manage CGT on cryptoassets

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.

Negligible value

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. 

A successful negligible value claim effectively treats the cryptoasset as if it had been sold at the time it became of negligible value. HMRC considers that negligible means "worth next to nothing".

Therefore investors who held cryptoassets in an earlier tax year that were worthless, at that time, may want to consider whether they can make a negligible value claim now to treat that loss as arising in that earlier tax year.

Such claim may be beneficial if they have gains in that earlier year. It is also worth noting that a negligible value claim does not require that the cryptoasset is sold; if the investors were to subsequently sell the crypto, for any value, then the entire proceeds would be taxable in the year of sale.

Timing and forward planning are essential considerations when realising both capital gains and capital losses.

Investors may also like to consider reliefs such as Enterprise Investment Scheme or Seed Enterprise Investment Scheme reinvestment relief.

Essentially these investments enable you to defer gains into a future tax year when the EIS investment is sold. Such, an investor could defer a gain on a crypto profit in say the 2020-21 tax year and, provided they crystallise capital losses before the EIS is sold, utilise those losses against the deferred gain.

Married couples and civil partners who are living together may wish to consider if cryptoassets can be passed to their spouse, such transfers are not taxable and the spouse will trigger the gain or loss on the eventual sale. This may be beneficial if the spouse has other gains or losses.

The key takeaway here is that timing and forward planning are essential considerations when realising both capital gains and capital losses so that crystallising events are structured in a tax-efficient manner. When reviewing the position with hindsight there are potentially ways to mitigate the tax, however the investors will need to carefully consider their position.

Company considerations

The rules are very similar for limited companies when it comes to investments in cryptoassets.

Capital losses will be available for assets sold at a loss and will be used against same-year capital gains or carried forward.

Capital losses for companies will save corporation tax, currently at 19 per cent.