UK Taxes on Crypto

The UK has one of the most developed and mature cryptocurrency markets in the world, and as such, it is subject to some of the most complex tax legislation when it comes to crypto taxation. In this article, we will take a closer look at the various UK taxes on Crypto.

Capital Gains Tax (CGT)

Capital gains tax is the tax that is applicable to any profit made from the sale of an asset. In the context of cryptocurrency, this could be any profit made from the sale of Bitcoin, Ethereum, or any other virtual currency.

In the UK, gains made from the sale of cryptocurrency are subject to capital gains tax just like any other asset. If you are a UK taxpayer, you are required by law to disclose any gains you have made from the sale of cryptocurrency to HMRC (Her Majesty’s Revenue and Customs), which is the tax authority in the UK.

The tax rate for capital gains on cryptocurrency is the same as any other asset: 10% or 20%, depending on your income level. However, this tax only applies after the £12,300 annual capital gains allowance has been exceeded.

Income Tax

Any income derived from cryptocurrency mining or airdrops is subject to income tax in the UK. This includes any income earned from trading cryptocurrency as well.

The rate of income tax applied to cryptocurrency income depends on your income level. For lower income levels, the income tax rate is 20%, and for higher income levels, it can go up to 45%.

Value Added Tax (VAT)

In the UK, the sale of goods and services in exchange for cryptocurrency is liable to VAT at the local rate. This means that if you are selling products or services in exchange for cryptocurrency, you must charge VAT on the value of that product or service at the local rate.

For example, if a company sells a product in exchange for Bitcoin, they must calculate the value of that product in fiat currency and charge VAT at the local rate on that amount.

Stamp Duty Land Tax (SDLT)

Stamp Duty Land Tax is a tax on any transaction involving the purchase of land or property in the UK. If you are purchasing a property in the UK using cryptocurrency, the transaction is subject to SDLT just like any other property transaction.

The tax rate for SDLT depends on the value of the property being purchased, and it ranges from 0% to 15%.

Inheritance Tax (IHT)

Inheritance Tax is a tax on the estate of a deceased individual. If a person dies holding cryptocurrency, the currency is treated as part of their estate and is subject to inheritance tax.

The rate of inheritance tax for cryptocurrency is the same as any other asset, which is 40% on any value that exceeds the £325,000 inheritance tax threshold.

Conclusion

As the cryptocurrency market continues to develop, so too does the tax legislation that applies to it. If you are a UK taxpayer who deals with cryptocurrency, it is essential that you understand the tax obligations that come with this activity. The above are the various taxes that apply to cryptocurrency in the UK, and you should seek professional advice if you have any doubts about your tax obligations.

What records should you keep for tax calculation of Crypto gains?

As cryptocurrencies gain more popularity and mainstream acceptance, it is essential for investors to keep track of their gains and losses for tax purposes. Given the unregulated nature of cryptocurrencies, the IRS has not issued definitive guidelines for how taxpayers should report digital currency transactions. However, in general, crypto investors should keep records of their cryptocurrency purchases, sales, and trades to calculate their gains and losses accurately. Here are some specific records that investors should maintain for tax calculation of crypto gains.

Date of Purchase:

The date of cryptocurrency acquisition is important as it determines the holding period, which affects the tax treatment of the gains or losses. If the cryptocurrency was held for more than a year, long-term capital gains rates apply, which are significantly lower than short-term capital gains rates for assets held for less than a year. Therefore, it is important to maintain the exact date of purchase for every cryptocurrency asset.

Purchase Price:

Record the price you paid for each digital currency unit you own, including transaction fees and other associated costs. This information is used to determine the cost basis and any capital gains or losses from the sale or trade of the cryptocurrencies. You can keep track of the purchase prices in your cryptocurrency wallet or by using a cryptocurrency portfolio tracker.

Sale or Trade Date:

Similar to the purchase date, the sale or trade date is essential as it determines the holding period and the tax treatment applied. You need to maintain the exact date of when the digital currency was sold or traded.

Sale or Trade price:

The selling price is the amount received when a cryptocurrency is sold or exchanged, and it is used to calculate the capital gain or loss for the transaction. Hence, it’s critical to record the exact sale price obtained for each unit traded/sold.

Exchange or Wallet Provider:

For each cryptocurrency transaction, it is crucial to note the exchange or wallet provider you used to buy, sell or trade your coins. Different exchanges and wallets have different pricing structures, transaction fees, and policies for reporting transactions, which can affect the tax calculations.

Cryptocurrency type:

Another important factor is recording the type of cryptocurrency you own or transact. Different cryptocurrencies have different tax treatments, depending upon their varying characteristics. For example, Bitcoin may face different tax exposure than Ethereum or Litecoin.

Cost basis:

Cost basis is the purchase price, along with the associated fees, and these records must be kept in order to compute capital gains and losses for tax purposes. It is necessary to keep records of the costs associated with each purchase or transaction.

Conclusion

In conclusion, keeping these records organized and up-to-date can keep you compliant with tax laws and can spare you from expensive tax troubles in the future. You can organize it using tools such as spreadsheets or portfolio trackers that allow the upload of CSV or Excel sheets. Keep a hard copy or backup of your records in a secure location, and learn about your tax obligations, and consult with a tax expert if necessary, to fully understand your responsibilities as a cryptocurrency investor.