Many people now invest in various cryptocurrencies, whether that’s Bitcoin, Ethereum, Doge, NFTs or the plethora of other crypto investments you can choose. What lots of people don’t realise is that if they are buying and selling crypto, they may have a tax liability.
In the UK ‘normal currency’ like pounds and sterling are not taxable on individuals, that’s even if gains are made on the exchange of currency. But HMRC do not class cryptocurrency as normal currency and any gains made, or income received is taxable in the UK.
A gain can even arise when you use cryptocurrency to make payments for other items. Any transaction which results in you reducing the number of cryptocurrency you have, is a disposal for capital gains tax purposes.
Generally, crypto assets are subject to capital gains tax, and the tax payable is probably most easily demonstrated with an example:
If an individual spent £10,000 on 5 Ethereum in 2023, then in March 2024, the value of the this had increased to £15,000, of which they use £5,000 to pay for a purchase, they will have a gain of £1,667 on the £5,000 payment. This will be subject to tax at 10% if they are a basic rate taxpayer or 20% if their earnings mean they are a higher rate taxpayer.
Even switching your cryptocurrency between one and other can give rise to a gain as no form of rollover relief is available. As you can see both by using the crypto to purchase items or by switching which type of crypto you are holding can give rise to a tax charge when you might not readily have the cash available from the ‘sale’ to pay the liability.
Every individual has an annual exemption of £3,000 (for the tax year 2024/25 and beyond) so provided your net gains on all assets in the year are below this value then no tax will be payable.
There are exceptional circumstances where buying and selling crypto may be regarded as a trade, but this is not relevant in most cases.
Another thing to be aware of is that certain crypto assets also provide you with certain types of rewards. Whether this is from mining or staking, in which you may receive further cryptocurrency or other forms of rewards, the cryptocurrency you receive as the reward is taxable as income and it is generally regarded as miscellaneous income, so you do not have any savings allowances to set against this. The tax payable on this can therefore be at rates of 20%, 40% or even 45% if your income is in excess of £125,140.
As you can see if you have numerous crypto transactions throughout the year this may result in significant tax liabilities. If you have any questions on the above, please contact alex.dent@saint.co.uk
The above article is to provide information on the tax treatment of cryptocurrencies and should not be construed as investment advice.
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