People who own cryptoassets can use online exchanges to buy and sell tokens, converting traditional (fiat) money into cryptocurrency and back again; and exchanging one type of token for another.
Some exchanges are custodial, i.e. they offer a "wallet" as part of their service; others are non-custodial.
Exchanges mostly require the cryptoasset owner to set up an account; once the account is set up, the account holder can then propose and undertake transactions. The exchange will try to execute the requested transactions; it may also hold some tokens and/ or fiat money itself, acting as a sort of "market maker".
There are various types of fees that exchanges may charge to traders, including:
- deposit fees for depositing fiat money with the exchange;
- trading fees for converting fiat money into tokens and vice-versa; and for exchanging different kinds of token; and
- withdrawal fees for withdrawing funds (or tokens) from the account.
In certain circumstances a person may be able to deduct some of these fees against income / gains associated with cryptoasset transactions, but it depends on the specifics in each case. The rules for expense deductions for miscellaneous income and capital gains tax are quite restrictive.
We'll be publishing further blogs about the taxation of crpytoassets in the coming weeks; if you've got a question or require help with your cryptoasset tax situation, contact us today.
For more information about UK tax on cryptoassets, check our our Insights pages.