How to Pay Tax on Cryptocurrency in the UK
6th April, 2024
Are you extremely knowledgeable in the world of cryptocurrency investments, or are you a complete amateur? However you are with cryptocurrencies such as Bitcoin, are you clued up on how and what tax to pay on your investments and crypto assets?
Haggards Crowther brings you this blog post to discuss everything you need to know about how to pay tax on cryptocurrency in the UK.
Do I Have to Pay Tax on Cryptocurrency UK?
The answer is yes, you do have to pay tax on cryptocurrency investments, although crypto is a digital currency and therefore is not considered legitimate money. The assets from crypto are treated like shares from a tax perspective and are taxed in this way accordingly.
There are some exceptions to the rules for crypto investors. Investors need to be aware of the various ways to transact cryptocurrency that traders do. The different ways of trading are still subject to tax as it is still classified as crypto income.
Over recent years, there have been huge investment opportunities in crypto and the potential for large amounts of money to be made. People have been successful in investing in crypto assets with the main cryptocurrencies being; Bitcoin (BTC), Ethereum (ETH), Tether (USDT), BNB (BNB), USD Coin (USDC), Polygon (MATIC), to name a few of the main examples.
With a rise in popularity and large amounts of money to be made with these types of currencies, it has drawn the attention of tax regulators, HMRC. The trading nature of crypto has a reputation for being underhand, however, legitimate crypto investments will be watched closely.
Crypto tax inevitably is complicated. If you are a crypto trader or investor then you need to be careful and be aware of the range of transactions.
How Much Is Taxed on My Crypto Investment Gains?
The amount of tax you pay on your crypto investment gains depends largely on how much you earn with it overall during the tax year.
Your salary, your total crypto trading and any other earnings you have made are all taken into account. This total number will determine how much of your profit is taxed and is your Capital Gains Tax.
Capital Gains Tax
Capital Gains Tax is the tax you owe in profits that you make. This accounts for any asset that you sell. It could be a house, car, jewellery or crypto. For the current 2024/25 tax year, you will pay the following rates.
- 10% for your whole capital gain if your income annually is under £50,270. This is 18% for residential properties.
- 20% for your whole capital gain if your income is over the threshold of £50,270. This is 24% for residential properties.
With cryptocurrency, you can earn £6000 each year in tax-free gains. After this, any investment activity is involved with crypto or any other investment type.
Income Tax
Income tax is for those that are buying or selling or receiving in some way cryptocurrency through trade. This is someone who actively buys and sells crypto assets to create short-term profit.
To fall into the trading category you will need to be buying and selling crypto assets with purpose and with the level that an organisation that the activity amounts to a financial trade.
If you do meet these criteria, your net profits will be subject to income tax of 20%, 40% and 45% depending on the tax bracket that your income falls under. Then national insurance is 12% and 2% also.
When Do I Pay Tax on Crypto?
If you have sold some crypto assets and acquired more than you bought for them, you are likely to pay capital gains tax on your profits. If you have lost money through your crypto trading, you minimise your capital gains tax bill.
If you happen to swap cryptocurrencies instead of selling, this will also trigger a capital gains tax. This is because you will still be selling to other investors and making gains that way.
If you are trading large amounts of crypto, HMRC will believe you are a trader and will require you to pay income tax on your trading – this will be instead of capital gains.
You will also have to pay national insurance and income tax regardless of the type of crypto you have been trading.
Any of the tokens awarded to the value of GBP will be taxable at the time of receipt by HMRC.
How to Pay Tax on Cryptocurrency in the UK
As a crypto investor, you need to report gains on your annual self-assessment tax return. Alternatively, you can use HMRC’s real-time reporting service for capital gains tax if you want to pay tax on your crypto this way.
Record keeping is the key here. If you are a crypto investor then you need to keep an accurate record for tax purposes. Instruction from HMRC says that investors of crypto must declare:
- The type of crypto they are investing in
- The date you disposed of them
- Amount of tokens you disposed
- Value of the token in sterling pounds
- Bank statements
How Haggards Crowther Can Help You
It is always best to speak to a financial advisor when dealing with taxes and wanting to get your taxes right with HMRC. This is especially the case when it comes to complicated circumstances such as crypto taxes. Get the right help for your financial circumstances and crypto assets with Haggards Crowther.
Still, feel the need for some help? Talk to us today and we can help you understand and assist you in declaring your crypto gains for tax purposes. We can take away the stress that comes with tax assessments of any kind, including cryptocurrency.
Contact our Crypto Accountants team at Haggards Crowther today to learn more about the process, and to discuss how we can help you with your assets.
Terry started life at HM Revenue and Customs before moving to Ashdens and then on to BDO and Chantrey Vellacott, the combination of which has provided Terry with a wide breadth of experience which has proved invaluable when helping a broad range of clients with their tax affairs.
Whether it involves meticulously organising a client’s tax affairs or leveraging his expertise to mitigate their tax exposure, Terry has a passion for delivering tangible results.
