How is Cryptocurrency Taxed in the UK?

With cryptocurrency becoming more and more popular, we thought it would be a good idea to share a quick guide on how it’s taxed in the UK. This information isn’t definitive and the market is constantly changing, so if you require tailored advice we recommend getting in touch with our finance specialists for an insightful chat.

Cryptocurrency categories

To begin with, tax is indeed charged on profits from crypto. However, rather than being classed as money or currency, crypto assets fall into four main categories:

• Exchange tokens: These are intended to be used as a means of payment, Bitcoin being the most well-known example of an exchange token.
• Utility tokens: These provide the holder with access to particular goods or services on a platform, which is usually done using distributed ledger technology, or DLT. This is a digital system for recording the transaction of assets in which the transactions and their details are recorded in multiple places at the same time. Unlike traditional databases, distributed ledgers have no central data store or administration functionality.
• Security tokens: These tokens come with particular rights or interests in a business, such as ownership, repayment of a specific sum of money, or entitlement to a share in future profits.
• Stablecoins: A form of crypto asset that’s pegged to the value of mainstream legal tender or other assets and therefore comes without the volatility of other crypto assets.

How is crypto taxed?

If you hold any kind of crypto assets as part of your personal investment portfolio, you’ll be liable to pay tax. The tax you pay will be on any profits above the Capital Gains Tax exemption, which is your annual tax-free allowance (currently set at £12,300 for the financial year 2021/22).

Whether you gain profits through cryptomining, airdrop, confirmation rewards or in the form of a salary from an employer, they need to be recorded as part of your tax return. On the other side of the (crypto)coin, capital losses from cryptocurrency can be considered for tax liability. In other words, if you sell the crypto for a loss, this loss of capital can be deducted to reduce your overall capital gain.

Tax is charged at 10% up to the basic rate (£37,700 to the degree the basic rate is not used) and 20% thereafter.

How to stay compliant

The best way to remain on top of your tax when it comes to cryptocurrency is to treat it just like a shares portfolio, in that you’ll log everything in detail and include it in your tax return. To make this process much smoother, TreyBridge Accountants can manage all of your tax for you, as well as provide proactive tax consultancy that can help you to reduce the amount you owe each year to HMRC.

We’re your friendly tax specialists

To find out more about any tax-related subject, call our Yorkshire office on 01482 235575, our London office on 0207 885 0605, or fill in our contact form.