Wondering if you’re liable to pay crypto tax when you sell your assets in the UK? Read on for all you need to know…

Whether you’re keen to HODL your cryptocurrency long-term or follow the ebbs and flows of the market, you may be wondering what the deal is when it comes to crypto tax. Do you have to pay when you sell your assets? Let’s explore whether cryptocurrency is taxable in the UK, and why this might be.

(Please note that cryptocurrency is a high-risk asset. All information on the Gridlock blog is for informational and educational purposes only and is not intended as financial advice. Please consult a financial advisor and check HMRC guidelines to ensure you’re following the correct legal tax processes). 

Are cryptocurrency profits taxable in the UK?

It is a common misconception that profits arising from cryptocurrency assets are seen as gambling transactions or lottery-type wins and are therefore tax-free. This is not the case and it’s best to be aware of taxation before you start trading crypto.

Cryptocurrency is a relatively new asset and, as such, regulations surrounding it are still in formation. The HMRC has guidelines on paying Capital Gains Tax when you sell or give away cryptocurrency assets in the UK, and it’s a good idea to familiarise yourself with these if you intend to sell. 

Ultimately, crypto tax all depends on how you use your coins and tokens and how much profit you make. You don’t owe tax for simply holding assets in our cryptocurrency wallet. However, you may need to pay Capital Gains Tax when you sell, exchange, or use your tokens to pay for goods to services. You may also need to pay Capital gains if you give our tokens away to another person or donate to charity. The only crypto tax exemption is if you give your coins to your spouse or civil partner. 

You pay Capital Gains Tax when your profits from selling certain assets, including cryptocurrency, go over the tax-free allowance of £12,300.

Why is there a crypto tax in the UK?

In the UK, you have to pay tax on any profits over £12,300, whether that’s from earnings or investment in assets such as crypto. Even though the crypto market is notoriously volatile, and asset prices fluctuate greatly, gains over the £12,300 threshold are subject to taxation.

How to work out how much crypto tax you owe

Calculator for working out crypto tax

To determine whether or not you need to pay Capital Gains on our cryptocurrency assets, you need to work out how much profit you made from each transaction. To do so, surmise the difference between what you bought the crypto for and what you sold it for. If the asset was free — for example if it was a gift or airdrop — then go by the market value as your expenditure. Of course, this may alter your profit if the market value has fluctuated greatly. 

You don’t have to pay Capital Gains Tax on the value of crypto you’ve already paid Income Tax on. However, you do have to pay Capital Gains on the profit you make subsequently.

There are some deductions you can make. For instance, you can deduct any transaction fees that you paid before your transaction was added to the blockchain. If you paid to advertise for a buyer or seller of crypto, you can deduct that from our Capital Gains Tax, too. Take a look at the HMRC guidelines for more details of deductible costs.

How much tax do I have to pay on my crypto profits?

If your total taxable profit is above the annual tax-free allowance (£12,300), you must report and pay Capital Gains Tax. You’ll have to pay 10% (basic rate) or 20% (higher rate) of tax on these gains.

To sum up

Anybody who holds cryptocurrency as a personal investment will be taxed on any profits made from the assets. However, you only have to pay Capital Gains Tax on overall gains that exceed the annual government threshold (currently £12,300).