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The UK requires its residents to pay taxes on cryptocurrencies and provides fairly straightforward guidelines. The HMRC (HM Revenue and Customs) is the UK’s government body responsible for collecting taxes and will track individuals' assets in certain circumstances to verify the correct amount has been paid. HMRC states that the investor can be subject to income tax and capital gains tax purposes depending on the crypto transaction.
How Is Crypto Taxed in the UK?
Based on your investment activity, you will have to pay capital gain taxes or income tax. Here’s what triggers a taxable event in both categories.
Capital Gains Tax
Selling cryptocurrency
Trading cryptocurrency (buy or sell crypto assets) for another cryptocurrency
Using crypto to make purchases
Income Tax
Mining income
Staking
Referral rewards
Airdrop rewards
How Much Does the UK Government Tax Cryptocurrencies?
As mentioned before, cryptocurrencies are taxed under capital gains or income. Both use a bracket system where individuals with higher trading profits will pay more. Here are the percentages of how much tax you’ll have to pay:
How Much Capital Gains Tax do I Have to Pay?
Income | Tax Percentage |
|---|---|
Up to £50,270 | 10% |
£50,721 - £150,000 | 20% |
More than £150,000 | 20% |
How Much Income Tax do I Have to Pay?
Income | Tax Percentage |
|---|---|
Up to £12,570 | 0% |
£12,571 - £50,270 | 20% |
£50,721 - £150,000 | 40% |
More than £150,000 | 45% |
What crypto transactions are not considered taxable income?
Some cryptocurrency transactions or investment activities are not taxable in the UK. Some of these include:
Holding crypto long-term
Sending crypto between wallets and exchanges
Gifting cryptocurrency to a partner
Donating cryptocurrency
Buying cryptocurrency using GBP
Crypto Tax Allowances in the UK
UK investors can pay a 0% tax on cryptocurrency profits up to £12,300 by using the capital gains tax allowance scheme. Also, you will not have to pay tax if you receive crypto assets worth less than £1,000. If you would like to learn more, take a look at our guide on how to invest in cryptocurrency in the UK.
Crypto Capital Losses Explained
Cryptocurrencies are volatile assets, so it’s not uncommon for investors to lose money. If you lose money on crypto, you won’t have to pay capital gains tax bill. However, you should still keep a detailed record and register them with HMRC because you can offset losses with capital gains.
The United Kingdom has no limit on how much capital gain losses can offset your gains. This means you can effectively pay no tax until you reach the tax-free allowance of £12,570 as long as your losses offset gains.
Are Stolen Cryptocurrencies Considered Capital Losses?
HMRC does not consider lost or stolen crypto as capital gain losses. However, you can make a negligible value claim if you can prove you cannot access your lost or stolen crypto. If the claim is successful, you can take the lost funds as capital gain losses.
Can HMRC Track Crypto Assets?
Yes, HMRC can track cryptocurrency assets by working with exchanges and using customer information provided through the KYC process. In fact, HMRC has been tracking crypto transactions since 2014 and has a data-sharing program with all licensed crypto exchanges in the UK.
How Can I Avoid Paying Taxes on Crypto in the UK?
There is no way you can avoid paying taxes on cryptocurrencies in the UK. However, you can reduce your tax capital gains tax rates and income tax rates legally, here’s how:
Tax Breaks
UK residents only have to pay capital gains tax on cryptocurrency profits exceeding £12,300. Also, if you are going to pay income tax, you can use the standard personal allowance to pay 0% tax up to £12,570.
Gift Crypto to Your Partner
You can gift your significant other crypto and benefit from the capital gains tax allowance. This effectively doubles the amount you won't have to pay on taxes on crypto to £24,600. However, HMRC will not allow you to use this benefit if you and your partner are not living together or separated.
Donation
Cryptocurrency donations are tax deductible in the UK. Therefore, you can allocate some of your portfolio to charity and gain a deduction worth the full value.
It is important to note that cryptos are subjected to capital gains tax when you attempt to dispose of the crypto. According to HMRC, any tokens given out at the time of receipt will have a GBP value and will be subject to miscellaneous income tax, with any reasonable expenses decreasing the chargeable amount. To further reduce taxes owed, people may opt to consider it as savings income and claim personal savings allowance.
How to Pay Cryptocurrency Taxes in the UK
This section will highlight the process of paying taxes in the United Kingdom.
How to Calculate Crypto Taxes
The best way to calculate taxes is to use a service that tracks your investments. However, if you want to manually calculate your taxes, here’s how:
Track all the taxable transactions you’ve made
Identify if they are subject to income tax band and capital gains tax
Calculate your trading profits and losses
Subtract losses from profits
Where to Declare Crypto Taxes in the UK
Once you’ve calculated your taxes the next step is to declare it to HMRC. Visit the Government Gateway to file your taxes under the Self Assessment Tax Return. You’ll need to declare crypto gains and losses on SA100 and Capital Gains Summary SA108. However, if you need to report crypto income, it’s box 17 of the Self Assessment Tax Return.
How to Pay Cryptocurrency Tax in the UK
After you’ve filled out your taxes, HMRC will get back to you with the exact amount you owe. They will also display their banking details where you can pay your crypto tax.
Summary
To conclude, the UK is straightforward with how they tax cryptocurrencies - income or capital gains tax. Based on profits you’re placed in a bracket where you’ll pay a fixed percentage amount. However, you can reduce your taxes by donating, offsetting previous losses, gifting crypto to a partner, and using tax breaks.
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