Capital gains tax: Should you report your cryptocurrency holdings or profits to HMRC? | Personal finance | Finance


Capital gains tax is a levy on the profit a person makes when they sell or give away something that has increased in value. But what are the rules when it comes to cryptocurrency like bitcoin?

Britons who sell assets whose total taxable gains exceed their annual capital gains allowance of £12,300 are required to pay CGT.

The levy for basic rate taxpayers is 10%, rising to 20% for higher rate taxpayers.

However, as cryptocurrency and bitcoin are relatively new, it could lead to confusion as to whether Britons should notify HM Revenue and Customs (HMRC).

James Carn, associate director of private client tax services at Tilney Smith & Williamson, said it all depends on an individual’s gains and losses.

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In exceptional cases, an individual may be subject to income tax instead of capital gains tax.

Mr Carn continued: “Tests to determine whether or not an individual is deemed to ‘trade’ an asset are complex and rely on the interplay of a number of factors including source of funding, frequency of trading, the method of acquisition and the time interval between the purchase and sale of the asset.

“Trading losses can be compensated by other income which is more attractive than the treatment of capital losses.

“HMRC is however likely to challenge a taxpayer who declares a loss related to a crypto-asset as a business loss, as there is a significant hurdle to clear in order to meet the business criteria.”

People don’t have to pay capital gains tax on transfers between spouses or civil partners or on most charitable donations if the transfer is direct.

In addition to the amount originally paid for the asset, other costs may be deducted when calculating the gain or loss, including transaction fees and valuation fees.

Crypto holdings are an asset that will become part of a person’s estate upon death and could cause the estate to exceed the IHT liability threshold.

HMRC has more information on their website and it’s a good idea to seek independent financial advice if people are still unsure.

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