Crypto-currency – what is it and how on Earth is it taxed?!
By now, you’re probably no stranger to the term ‘Crypto’, but what exactly is Crypto-currency and how does it interact with the UK tax system? Today, Craig will break down some of these questions and hopefully put your mind at ease as to how you might be looking after your portfolio.
What is Crypto-currency?
According to the Oxford dictionary, Crypto-currency is “a digital currency in which transactions are verified and records maintained by a decentralised system using cryptography, rather than by a centralised authority”.
You may have heard of currencies such as Bitcoin and Ethereum, which make up over 50% of the Crypto market. However, the overall market is flooded with new and emerging coins which people are investing in all the time.
How is Crypto-currency taxed?
Cryptocurrencies are seen by HMRC as an asset and any gains in the value of a currency are therefore taxed under Capital Gains Tax rules. Where an investor needs to take particular care is when disposing of a currency. Each sale is classed as disposal even in the case where the currency is being traded for another. If you are a business currently using Crypto-currency discover how our business advice can help.
Many people are under the impression that the chargeable event occurs when the funds from the sale are moved across to a bank account, although this as mentioned above this is not the case. It’s also very important to note that the investor will need to take steps to ensure they are in control of records that show when purchases and sales were made in order to calculate any potential gain.
How to report crypto currency on tax return?
At the time of writing, the crypto market is seeing something of a crash. It’s worth remembering that gains are calculated based on the sales price at the time less what you initially paid for the currency and any associated selling costs. You may have seen a drop in the price of your coin, however, a gain may still be present as the selling price may be higher than the price you paid.
In a very small amount of cases, HMRC may deem an investor as a trader instead. This is only likely to be happy where the volume of transactions is significant (potentially upwards of 10,000 trades per year).
The Crypto market is fast moving and is always evolving as more and more people jump onboard. We’ll keep you up to date with any changes on Crypto currencies, but should you have any further questions please get in contact with our team on 01704 546000.