With the recent surge (and fall) in the value of crypto currencies, it is important to bear in mind HMRC view these currencies as assets and individual investors may have to pay capital gains tax on any gains made from their activates. At certain levels Income tax and Class 4 National Insurance may be payable instead.
To begin with the price paid for these currencies and any other expenses incurred to acquire them must be recorded accurately to calculate future gains correctly.
Tax on gains over the annual tax-free allowance of £11,300 (for individuals) for tax year 2017/18 is charged at 10% or 20% depending on the individual’s circumstances.
Gains must be reported via the self-assessment system on tax returns by 31 January following the end of the tax year in which the disposal occurs to avoid any penalties from HMRC.
If up to four times the rate of the annual tax-free allowance of £11,300 of i.e. £45,200 of crypto assets are sold even if the net gains are not more than the annual tax-free allowance, then the sale must be reported to HMRC.
Married individuals could gift some of their assets to their spouses prior to disposal to utilize their tax-free allowance resulting in a combined tax-free gain of £22,600 per tax year.
If the frequency of and time spent buying and selling crypto currencies is sufficient then HMRC may consider it a trade and then rather than the profits being chargeable to capital gains tax they will be chargeable to income tax at 20%, 40% or 45% and National Insurance at 9% and 2%. This would result in a higher tax charge and so care must be taken to get your disclosure to HMRC correct.
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