Cryptocurrency is a fast-growing investment trend, but did you know that in the UK, profits from cryptocurrency investments are typically subject to Capital Gains Tax (CGT)? If you sell your cryptocurrency at a profit, you may need to pay tax on those gains. Here’s a breakdown of the key details:
1. When Does Capital Gains Tax Apply?
You may need to pay CGT in the following situations:
- Selling cryptocurrency for fiat currency (e.g., GBP).
- Exchanging one cryptocurrency for another (e.g., Bitcoin for Ethereum).
- Using cryptocurrency to buy goods or services if its value has increased since you purchased it.
- Gifting cryptocurrency to someone (excluding your spouse or civil partner).
2. Calculating Your Gains
- Your gain is the difference between the purchase price and the sale price of the cryptocurrency.
- You can deduct transaction costs (e.g., exchange fees) from your gains to reduce your taxable amount.
3. Tax-Free Allowance
- Every individual in the UK has an annual CGT allowance. For the 2024/2025 tax year, the allowance is £6,000. If your total gains are below this threshold, you won’t need to pay CGT.
4. What About Mining and Staking?
- Income from mining or staking may be subject to Income Tax rather than CGT if HMRC considers it a profit-generating activity.
5. Key Deadlines
In the UK, CGT is reported through the Self Assessment Tax Return. Here are the crucial dates:
- Tax year: Runs from 6 April to 5 April of the following year.
- Filing deadlines:
- 31 October for paper tax returns.
- 31 January for online tax returns.
- Payment deadline: Any tax owed must be paid by 31 January, along with your online submission.
Example:
If you made cryptocurrency gains between 6 April 2023 and 5 April 2024 (2023/2024 tax year):
- File your paper return by 31 October 2024, or
- Submit online by 31 January 2025.
6. Important Notes
- If your cryptocurrency gains exceed the annual allowance of £6,000, you must report them.
- Even if your gains are below the allowance, but the total value of assets you sold is over £50,000, you still need to declare it.
Final Thoughts
Keeping detailed records of all your cryptocurrency transactions is essential to comply with HMRC’s requirements. This includes dates, amounts, transaction fees, and any associated costs.
If you’re unsure how to calculate your gains or navigate the tax rules, don’t hesitate to contact Lucas Prestige Accountants. Our experts are here to guide you through the process, ensuring your finances stay on track.
📩 Contact us today for professional advice!
