Crypto Self-Assessment Tax Returns
Things to Be Aware Of…
Cryptocurrency has rapidly grown in popularity, and as more people invest in Bitcoin, Ethereum, and other digital currencies, it’s important to understand the tax implications. In the UK, the HMRC views cryptocurrency as property, not currency, which means gains and losses from crypto transactions may be subject to Capital Gains Tax (CGT) or Income Tax, depending on the nature of the transaction. If you hold crypto and need to file a self-assessment tax return, there are several key things you need to be aware of.
1. Understanding Taxable Events
A taxable event in the context of cryptocurrency refers to a transaction that triggers a tax liability. In the UK, the following are considered taxable events:
- Selling crypto for fiat currency (e.g., GBP)
- Exchanging one cryptocurrency for another
- Using cryptocurrency to purchase goods or services
- Receiving cryptocurrency as a form of payment or reward (mining, staking, airdrops, etc.)
It’s important to keep records of these transactions as they will determine your gains or losses.
2. Capital Gains Tax (CGT)
Most individual cryptocurrency investors will need to pay Capital Gains Tax on any profits made from selling or exchanging their digital assets. The CGT rate is dependent on your income level, with basic-rate taxpayers benefitting from a 10% rate of tax on any gains that fall within their remaining unused income tax basic rate band. Higher or additional-rate taxpayers pay a flat 20% CGT on their gains. The annual exempt amount for the current tax year 2024/25 tax year is £3,000, although the threshold was higher at £6,000 in the prior tax year (2023/24). If you have gains that are lower than the annual exemption, they are not subject to CGT.
To calculate your CGT, you must subtract the cost of acquiring the cryptocurrency (including any transaction fees) from the overall sales proceeds. If you’ve made a profit, CGT may be due on the amount exceeding your annual exemption. If you’ve made a loss, it is important to carry forward that loss to use against any future gainscl
3. Income Tax
In some cases, Income Tax rather than CGT may apply, especially if you’re actively trading, mining, staking, or receiving crypto through airdrops. Mining rewards, for example, are considered income, and the market value of the crypto at the time it was received must be declared. Similarly, if you’re seen as a frequent trader, your activities may be treated as a business, and any profits would be taxed as income.
Income Tax rates vary based on your earnings: 20% for basic-rate taxpayers, 40% for higher-rate taxpayers, and 45% for additional-rate taxpayers.
4. Keeping Accurate Records
HMRC requires you to maintain comprehensive records of all your crypto transactions, even if you don’t owe tax on them. This includes:
- Dates of transactions
- The value of the cryptocurrency in GBP at the time of each transaction
- The type of transaction (buying, selling, exchanging)
- Fees or costs associated with the transactions
- The wallet addresses involved
These records will allow you to accurately calculate your tax liability and support your figures if HMRC asks for evidence. Cryptocurrency exchanges may not provide comprehensive reporting, so it’s crucial to maintain your own records.
5. Deductible Expenses
Certain expenses can be deducted from your taxable profits, reducing your CGT or Income Tax bill. Deductible expenses include transaction fees, withdrawal fees, and the cost of professional advice or software used to manage your crypto portfolio. However, personal costs, such as electricity used for mining at home, may not be deductible unless you are running a mining business.
6. Crypto Losses
If you’ve made a loss on your crypto investments, you can use these losses to reduce your tax bill by offsetting them against any gains. To do this, you must declare the losses on your self-assessment tax return. Unused losses can be carried forward to future tax years, which could be useful if you anticipate gains in the coming years.
7. Staking, Airdrops, and Forks
- Staking Rewards: If you earn cryptocurrency through staking, this is usually considered income and subject to Income Tax. The value of the cryptocurrency when you receive it should be reported as income.
- Airdrops: Receiving cryptocurrency through airdrops may also be subject to Income Tax. However, if you receive an airdrop without performing any action in return, it may not be taxable until you dispose of the crypto.
- Hard Forks: If a cryptocurrency undergoes a hard fork, resulting in the issuance of new coins, these new coins may be subject to Capital Gains Tax when disposed of, similar to other crypto assets.
8. Deadlines and Penalties
The UK tax year runs from 6th April to 5th April of the following year. If you have crypto gains or income to declare, you must file your self-assessment tax return online by 31st January following the tax year. If you miss this deadline or underreport your crypto taxes, you could face penalties and interest charges.
9. Getting Professional Help
Crypto taxation can be complex, especially with the added volatility and unique aspects of digital assets. It’s easy to overlook taxable events or miscalculate gains. If you’re unsure about how to report your crypto transactions or calculate your tax liability, it may be worthwhile seeking professional help from a tax advisor familiar with crypto.
Final Thoughts
As the HMRC continues to refine its stance on cryptocurrency, staying compliant with tax regulations is essential to avoid hefty fines and penalties. Whether you’re an occasional crypto trader or a seasoned investor, understanding your tax obligations and keeping thorough records will ensure you file accurate self-assessment returns. Make sure to review your transactions carefully and seek advice when needed to ensure you stay on the right side of the law.
Next Steps
By staying informed and organised, you can minimise your tax liability while complying with HMRC’s requirements. ETC Tax is here to help you with your crypto, ensuring you’re maximising tax efficiency.
