I've written extensively about income tax and cryptoassets, but now it's time to look at how capital gains tax affects individuals who hold or deal in crypto.
The income tax rules generally apply to profits and losses made by individuals whose activities amount to a "trade". HMRC don't make it easy to understand what is (and isn't) a "trade" - but there needs to be a certain degree of activity, organisation, risk and commerciality involved. Profits from mining activities are normally subject to income tax, either as a trade or, if the activities don't amount to a trade, then under the miscellaneous income tax rules.
So what happens if you're making (or losing) money on crypto, but you're not trading or mining? For example if you just buy and sell tokens on an exchange now and again, perhaps as part of broader investing activities? that's where capital gains tax comes in.
The vast majority of UK individuals who buy and sell crypto in the UK are going to be taxed under the capital gains tax regime, rather than the income tax regime. For most, that's good news because you get a separate annual exemption allowance for capital gains and the capital gains tax rates are lower than the income tax rates (for now, at least!).
HMRC says that tokens are a "chargeable asset" for capital gains tax purposes, if they are 1) capable of being owned and 2) have a value that can be realised. Most tokens meet these critera, therefore most tokens are potentially within the capital gains tax regime.
Capital gains are generally reportable by UK taxpayers through the Self Assessment system and that's where Scholes CA comes in - we can help you calculate your taxable gains on crypto, and report them to HMRC on time so you don't get in the taxman's bad books. Just contact us today for help, or visit us at our Kirkwall or Edinburgh offices.
What's more, if you made a loss on your crypto activities, we can help you report the loss and advise you on your options for getting tax back with available loss reliefs. Call us today on 01856 872983.