Cryptocurrency has become an increasingly popular investment and payment method in the UK. However, its unique nature means that it is subject to specific tax rules. In this blog post, we'll explore the key aspects of how cryptocurrency is taxed in the UK, helping you stay compliant and informed.

Capital Gains Tax (CGT)

When you dispose of cryptocurrency, you may be liable to pay Capital Gains Tax (CGT). Disposal includes selling cryptocurrency for fiat currency, trading it for another cryptocurrency, using it to purchase goods or services, or giving it away (except to your spouse or civil partner) .

To calculate your capital gain, you need to determine the difference between the acquisition cost and the disposal proceeds. If you have multiple transactions, you may need to pool the costs of your tokens. The current tax-free allowance for capital gains is £3,000 for the 2024-2025 tax year, down from £6,000 in the previous year .

Income Tax

Income tax applies to cryptocurrency in several scenarios:

1. Receiving Cryptocurrency as Payment: If you receive cryptocurrency as payment for goods or services, it is treated as income and taxed accordingly.

2. Mining and Staking: Cryptocurrency earned through mining or staking is also subject to income tax. The value of the cryptocurrency at the time it is received is considered taxable income.

   
   

The income tax rates for cryptocurrency are the same as for other forms of income, with different rates applying in Scotland.

Record Keeping

Accurate record-keeping is crucial for reporting cryptocurrency transactions. You should maintain detailed records of:

1. Dates of transactions

2. Amounts in both cryptocurrency and fiat currency

3. The value of the cryptocurrency in GBP at the time of each transaction

4. The purpose of the transaction (e.g., purchase, sale, exchange)

5. Any associated costs, such as transaction fees

Reporting and Paying Taxes

You must report your cryptocurrency transactions to HM Revenue and Customs (HMRC) and pay any taxes due. This can be done through your Self Assessment tax return. If you have made a capital gain, you will need to report it and pay the CGT. Similarly, any income from cryptocurrency must be declared and taxed appropriately .

Conclusion

Understanding the tax implications of cryptocurrency is essential for compliance and financial planning. By keeping accurate records and staying informed about the latest tax rules, you can ensure that you meet your tax obligations and avoid any potential penalties.

For personalized advice and assistance with your cryptocurrency tax matters, feel free to contact us at Purcell Accountancy.