There are some exceptions where certain activities are tax-exempt such as lottery winnings or spread betting winnings. Crypto is a new and emerging technology as well as an asset class, which begs the question: Do I need to pay tax on my crypto?

According to HMRC, cryptocurrencies are neither a ‘currency’ nor’ ‘money’ but a digit asset. This means that any gains made when liquidating or selling a digital asset are a “taxable event” from the time purchased to the time sold.

Example: You buy £100 of Bitcoin when the price is £10,000, which equals 0.01BTC.

Bitcoin rises in value to £20,000 and now your 0.01 BTC is worth £200; you’ve made a £100 gain that is applicable to capital gains tax.

Much like property, most investors are acquiring Bitcoin every day as a store of value and a reserve of their digital wealth and treating crypto like BTC, a long-term investment akin to property or gold.

Luckily, there are considerations in the UK for capital gains tax that you can take advantage of to ensure you don’t pay too much tax on your crypto gains.

When do you need to pay tax on crypto-asset profits?

  • Everyone in The UK has a £12,570 personal tax-free allowance a year, so if you’ve earnt more through selling crypto, you’ll need to pay tax on the profits over £12,570. Please note, however, that this personal allowance is not paid on taxable income over £125,140.
  • A strategy to consider is only selling and creating a capital gain exposure of under £12,570 “per year” to ensure maximum use of your capital gains exception.
  • Unlike some other countries, you are only taxed when a “taxable event” occurs, like Selling crypto back to fiat currency such as GBP or swapping to another cryptocurrency.
  • You will not be taxed on unrealized gains like other countries. Unrealized gains are the gains you’ve made from your previous investment that you are yet to sell.

*personal tax allowance for the 6 April 2023 to 5 April 2024 tax

In the rare case that you are trading crypto in an exceedingly high frequency and profits are substantial, a case can be made to the HMRC to be considered taxable income instead of capital gains.

Buying, Selling, and Holding crypto can be a great way to grow your wealth long-term, but one must also consider the tax implications and take full advantage of the exceptions available to them in their given jurisdiction.

As the acceptance of crypto-assets such as Bitcoin and Ethereum continue to evolve and become part of our society, the regulation, taxation, and support from central banks and governments must also evolve to support them.

The UK has the potential to be a world leader in the crypto-asset and digital currency space, and with the advancements made by the FCA and the HMRC, the future looks bright.

Disclaimer: This article is for educational and research purposes only and shouldn’t be taken as tax advice. Please consult your accountant for all tax matters about your specific situation, as tax rules and guidelines may have changed since the publishing of this article.