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The tax implications for individuals who own, sell or trade cryptocurrencies

In 2009 there was one single cryptoasset called Bitcoin. Today, there are multiple cryptoassets – also known as cryptocurrencies These are digital assets, not physical ones. 

Did you know? The word ‘cryptocurrency’ is fascinating in itself. The first part of the word, ‘crypto’, means ‘hidden’ or ‘secret’. This reflects the secure technology used to record who owns it and who makes payments and to whom.

The second part of the word, ‘currency,’ tells us the reason cryptocurrencies were designed in the first place: a type of electronic cash. There is no central bank or government to manage the system or step in if something goes wrong.

Due to the explosion of interest in cyrptocurrencies as a medium of exchange, HMRC has updated its guidance for individuals who own, sell and trade cryptoassets.  

Cryptoassets: Capital Gains Tax and Cryptocurrencies

In the majority of cases, cryptocurrencies, aka cryptoassets, are treated as an investment so individuals are likely to be liable for Capital Gains Tax (CGT) when they dispose of them.

For example, if you purchase 1 crypto ‘x’ for £10,000 and sell it a year later for £40,000 you have made a capital gain for tax purposes of £30,000. You will need to pay CGT on any gains above your annual CGT free allowance (currently £12,300).  Of course, any losses can be offset against current or future gains. 

Cryptoassets: Income Tax and National Insurance and Cryptocurrencies

In certain circumstances, HMRC may argue an individual is trading in cryptocurrencies, rather than being an investor. TO do this, HMRC considers the frequency of transactions, the size of capital investment, and amount of risk taken, amongst other elements. If HMRC deem that you are a trader, then you are liable for income tax and national insurance.

Inheritance Tax – have you made provision for you Cryptoassets in your will?

Cryptocurrencies may be subject to Inheritance Tax in the same way as tangible assets, if you pass away whilst holding them. 

Cryptoassets: Stamp Duty and Cryptocurrencies

HMRC does not recognise the transfer of cryptocurrencies to be within the scope of Stamp Duty. However, they will consider the characteristics and nature of cryptoassets such as utility and security exchange tokens on a case-by-case basis.

If you have any questions about the tax implications of holding, selling or trading cryptoassets, then please give the HB team a call on 01992 444466. We’re experts ready to support you, your family and your business, no matter your company size or sector.

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The information contained above is for general guidance purposes only. Whilst every effort has been made to ensure the contents are accurate, please note that each individual has different circumstances and it is essential that you seek appropriate professional advice before you act on any of the information contained herein. HB Accountants can accept no liability for any errors or omission or for any person acting on or refraining from acting on the information provided in the above

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