QUESTION: What are the tax implications of selling crypto-currencies as I have some spare cash and I am looking at investing this in a crypto currency?
ANSWER: In recent years, crypto-currency has transformed from a niche interest into a mainstream investment asset. As a result, many individuals in the UK have begun to buy, sell, and trade digital currencies like Bitcoin, Ethereum, and other altcoins.
However, with the potential profits from these transactions come tax obligations. HMRC have provided clear guidelines on how the sale of crypto-currency is taxed. Understanding the tax implications is essential for individuals to remain compliant with UK tax laws and avoid unnecessary penalties.
In the UK, crypto-currency is treated as property, not as currency. HMRC defines crypto-currencies as “crypto-assets” and treats them similarly to other capital assets, such as shares or property. The tax treatment depends largely on the individual’s activity. HMRC does not consider crypto trading to be gambling, and the tax liability will depend on whether the individual is considered an investor, trader, or using crypto in the course of a business.
Capital gains tax (CGT) typically applies to individuals who buy and sell crypto assets as investments. When your net capital gains (including those outside of crypto) exceed the CGT annual exemption for the tax year (2024/25 £3,000), you’re liable to pay CGT as an investor.
On the other hand, rewards from crypto asset activities such as mining and staking are usually treated as taxable income and are subject to taxation at your regular income tax rate.
The amount of tax you owe on your crypto transactions depends on various factors, including the reward, type of transaction and tax applied. Most crypto income needs to be reported as “miscellaneous income” and is subject to your normal income tax rate, based on the sterling value when received with any allowable expenses deducted.
When your total capital gains (from crypto and other property like stocks and shares) exceed the capital gains allowance, you will pay tax of 10% or 20% depending on your total income in the tax year. If your basic rate band is not fully used up with income, the unused amount can be used against capital gains for the 10% CGT rate.
In the UK, reporting crypto taxes is part of the annual self-assessment process, with a deadline of midnight on January 31 for both filing and paying. The UK tax year spans from April 6 to April 5 the following year, and filing opens at the beginning of the new tax year, giving you ample time to prepare and file before the deadline.
- Capital gains and losses from crypto activities should be combined with gains and losses from other sources, such as property and shares. These should then be reported on the Tax Return using the Capital Gains Summary SA108 supplementary pages.
- Miscellaneous income derived from crypto should be reported as ‘Other taxable income’ in Box 17 of the SA100 tax return form. Any allowable expenses, including the trading allowance if applicable, can be reported in Box 18.
- ·In rare cases, where an individual’s crypto activity is classified as financial trading, it should be reported on the self-employment pages of the tax return.
In the UK, selling crypto-currency carries clear tax implications. Whether subject to capital gains tax or income tax, it is essential for individuals to understand their obligations and report their crypto transactions accurately.
- Malachy McLernon (malachy.mclernon@aabgroup.com) is partner at AAB Group Accountants (www.aabgroup.com). The advice in this column is specific to the facts surrounding the question posed. Neither the Irish News nor the contributors accept any liability for any direct or indirect loss arising from any reliance placed on replies.
