Crypto Taxes in the United Kingdom

However, your cost basis from any coins received from a hard fork is derived from your existing tokens from the previous blockchain – not the fair market value of the coin on the day you received it. They say if you receive a liquidity pool token in exchange for your crypto – it’s a disposal. You can add up your cost basis based on tokens you’ve sent to the pool and then subtract that amount from the fair market value of the tokens at the point of disposal. Your liquidity pool tokens then inherit this as the cost basis for when you want to remove them from the pool.

The actual tax you need to pay will depend on your income bracket and the marginal income tax rate. Crypto assets airdropped with no attached expectations (or indeed completely out of the blue, as sometimes occurs) will not be subject to income tax. Provided that the user received the airdropped cryptocurrency “without doing anything in return” there is no applicable tax at the time of receipt. In this circumstance, the cryptocurrency would be taxed in full at disposal under capital gains tax rules using a cost basis of zero. For example, the most obvious would be the ‘day-trader’ who is actively buying and selling cryptoassets with the view to realising a short-term profit.

How to calculate CGT on cryptocurrency UK

In the meantime, many UK tax resident individuals may choose to continue to file tax returns on the basis that their crypto assets are non-UK situs. It will be important to make the relevant disclosures to reduce the risk of penalties should HMRC successfully challenge this position. If mining is classified as a business based on the criteria mentioned above, then the mining income will be added to trading profits and be subject to Income Tax. Similarly, fees or rewards received in exchange of any mining/staking activity will also be added to taxable income.

Crypto Taxes in the United Kingdom

The “sale proceeds” here will be the market value of the existing crypto – not the new token –
on the date that the exchange took place. In addition to that, this same market value will also serve as the cost basis for the new token you receive from the ICO, which you can use to calculate pooled costs. Some individuals may also be involved in mining and validating transactions, as well as staking and yield farming.

Business Rescue

Since then, we have amassed significant experience in this area, working with clients with crypto portfolios of a few hundreds of pounds to hundreds of thousands of pounds. The rapid growth in cryptocurrency and distributed ledger technology has seen an influx of new cryptocurrency business, traders and investors which has attracted significant attention from HMRC and Crypto Taxes in the United Kingdom other tax authorities worldwide. As a result, HMRC are actively enquiring into crypto businesses, traders and investors to ensure that all individuals and businesses involved in cryptocurrency pay their fair share. Ensuring cryptocurrency businesses, traders and investors are structured properly is paramount to keeping tax efficient and remaining compliant with HMRC.

Crypto Taxes in the United Kingdom

Selling your crypto for another crypto is a disposal – so it’s subject to Capital Gains Tax. Selling crypto for fiat currency like GBP is a disposal and subject to Capital Gains Tax. Despite this, you’ll still need to keep record of these transactions for HMRC. You might recall that in 2020, Coinbase handed over data on UK customers who transacted more than £5,000 worth of cryptocurrency between 2017 and 2019. If you donate tokens to charity, you may need to pay Capital Gains Tax on them.

Capital Gains

To check if you need to pay Capital Gains Tax, you need to work out your gain for each transaction you make. The way you work out your gain is different if you sell tokens within 30 days of buying them. Staking – Staking is akin to investment income and will be deemed to be subject to income tax regardless of whether a person is trading or not. GOV.UK has guidance on the tax consequences of selling (disposing of) or receiving cryptoassets. For example, if you are resident in the UK but you are domiciled in France and you own Bitcoin (whose value is usually given in US dollars), then your Bitcoin holding will be treated by HMRC as a UK asset. This would mean that if you make a disposal, any gain would potentially be taxable in the UK and could not be excluded from UK tax even if the remittance basis applied.

  • There are also different income tax and National Insurance rules for each type of income if you make a loss.
  • UK crypto investors can pay less tax on crypto by making the most of tax breaks.
  • Selling your crypto for another crypto is a disposal – so it’s subject to Capital Gains Tax.
  • HMRC say that income from mining is treated as trading income if the activity is of the nature of a trade.
  • This situs of exchange tokens is only based on HMRC guidance and has not been specifically legislated for.

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