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How to handle cryptoasset gains – what are the tax implications?

By RJP LLP on 24 February 2022

According to research by CNBC, 1 in 10 people have now invested in cryptocurrency, with 65% starting to dabble in this asset class in 2021. Some of the world’s most valuable companies are starting to hold significant amounts of cryptoassets and it’s also possible to accept cryptoassets as payment for the provision of goods or services. For example, you can buy products from Lush and Whole Foods using cryptocurrency.

All this interest has pushed the value of some currencies, like Bitcoin, to reach an all-time high and many people will have achieved very significant gains. So much so, that HMRC’s compliance monitoring activities for cryptoassets is increasing and this includes now using its bulk data-gathering powers to catch related tax avoidance offenders. For example, the cryptoasset exchange platform Coinbase has confirmed that it has already provided HMRC with data for customers who received more than £5,000 from cryptoassets in the tax year that ended on 5 April 2020.

For tax purposes, cryptoassets are treated in the same way as stocks and shares – gains are subject to capital gains tax (CGT) and losses may be used to offset gains. Gains may arise when cryptoassets are sold for cash, exchanged for another cryptoasset or used to buy other assets with a value.

If you have achieved cryptoasset gains that are liable to CGT, you will need to report this on a tax return and pay the arising tax by 31 January following the end of the tax year in which they arise. If you do not usually complete tax returns it is necessary to register with HMRC within 6 months of the end of the tax year. If you have overlooked these requirements, it may be possible to make a voluntary disclosure and minimise any penalty action.

Note when calculating the capital gains tax payable on cryptoassets, the standard capital gains tax exemption is available, entitling every taxpayer to annual gains of £12,300  before any tax is payable. If you make a loss, you must declare this and it is then available to offset against capital gains in the same tax year, or to be carried forward indefinitely to offset against future capital gains. In the event that a cryptoasset becomes ‘worthless’ or if it is lost and cannot be accessed again, you can make a claim to HMRC that it has negligible value.

Just like other assets, cryptoassets can be given away as part of a lifetime gifting strategy. They are considered to be property for the purposes of inheritance tax and will form part of an individual’s estate. However, due to their volatility, any gifting should be done with caution after taking expert advice. Gifts between spouses are always tax free, as with other types of assets.

Cryptoassets are less useful for pension investment purposes, because HMRC has confirmed that they do not consider crypto coins to be currency in the same way as sterling. This means it is not possible to make tax relievable pension contributions using cryptocurrency and the same position applies for ISAs.

If you would like specialist capital gains tax advice, on cryptocurrency or any other assets, contact partners@rjp.co.uk

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According to research by CNBC, 1 in 10 people have now invested in cryptocurrency, with 65% starting to dabble in this asset class in 2021. Some of the world’s most valuable companies are starting to hold significant amounts of cryptoassets and it’s also possible to accept cryptoassets as payment for the provision of goods or services. For example, you can buy products from Lush and Whole Foods using cryptocurrency.

All this interest has pushed the value of some currencies, like Bitcoin, to reach an all-time high and many people will have achieved very significant gains. So much so, that HMRC’s compliance monitoring activities for cryptoassets is increasing and this includes now using its bulk data-gathering powers to catch related tax avoidance offenders. For example, the cryptoasset exchange platform Coinbase has confirmed that it has already provided HMRC with data for customers who received more than £5,000 from cryptoassets in the tax year that ended on 5 April 2020.

For tax purposes, cryptoassets are treated in the same way as stocks and shares – gains are subject to capital gains tax (CGT) and losses may be used to offset gains. Gains may arise when cryptoassets are sold for cash, exchanged for another cryptoasset or used to buy other assets with a value.

If you have achieved cryptoasset gains that are liable to CGT, you will need to report this on a tax return and pay the arising tax by 31 January following the end of the tax year in which they arise. If you do not usually complete tax returns it is necessary to register with HMRC within 6 months of the end of the tax year. If you have overlooked these requirements, it may be possible to make a voluntary disclosure and minimise any penalty action.

Note when calculating the capital gains tax payable on cryptoassets, the standard capital gains tax exemption is available, entitling every taxpayer to annual gains of £12,300  before any tax is payable. If you make a loss, you must declare this and it is then available to offset against capital gains in the same tax year, or to be carried forward indefinitely to offset against future capital gains. In the event that a cryptoasset becomes ‘worthless’ or if it is lost and cannot be accessed again, you can make a claim to HMRC that it has negligible value.

Just like other assets, cryptoassets can be given away as part of a lifetime gifting strategy. They are considered to be property for the purposes of inheritance tax and will form part of an individual’s estate. However, due to their volatility, any gifting should be done with caution after taking expert advice. Gifts between spouses are always tax free, as with other types of assets.

Cryptoassets are less useful for pension investment purposes, because HMRC has confirmed that they do not consider crypto coins to be currency in the same way as sterling. This means it is not possible to make tax relievable pension contributions using cryptocurrency and the same position applies for ISAs.

If you would like specialist capital gains tax advice, on cryptocurrency or any other assets, contact partners@rjp.co.uk