We know that any tax questions can be worrying for our clients, when they are relatively new issues such as Cryptocurrency then the worry can be increased.
HMRC published a paper which sets out their view - based on the law as it stands at the date of publication – about how individuals who have Cryptoassets such as Bitcoin are taxed.
Our Managing Partner previously worked as a Senior Tax Professional within the Capital Gains Tax team in HMRC, giving us an unparalleled level of experience to help our clients to reduce their tax bills when they sell Cryptocurrency.
HMRC require that all disposals of Cryptocurrency be considered to see whether tax is due on any profits.
Call our experts today on 0800 0016 878 or email us at firstname.lastname@example.org for a free consultation to see how we can help you with any tax issues you have relating to Cryptocurrency.
In the vast majority of cases, individuals hold Cryptoassets as a personal investment, usually in the hope that there will be an increase in value. As this is seen as an investment by HMRC, they will be liable to pay Capital Gains Tax when they dispose of their Cryptoassets.
HMRC do not just consider the tax implications when Cryptocurrency is so. There may also be a tax charge when someone:
Here at The Tax Faculty, our experts are here to help to ensure that you are in a position to report the correct Capital Gain to HMRC and pay the Capital Gains Tax due at the appropriate time.
We offer a full Capital Gains Tax service which includes our full consideration of the reliefs available to reduce the potential Capital Gains Tax to the minimum level possible, while remaining within the letter of the law governing such disposals.
We have a proven history of reducing the final Capital Gains Tax due for our clients by considering all relevant facts and information provided to ensure that we are in a position to accurately advise on the most cost effective way of reporting the Capital Gain to HMRC. Check out our testimonials below, or find us on Trustpilot - where we have an "Excellent" rating and have yet to receive anything other than a 5 Star review from our delighted clients.
Contact us today on 0800 0016 878 or email@example.com to discuss how our experts can help you with any issues relating to Cryptocurrency.
Are profits from Bitcoin / Cryptocurrency tax free?
Unless you are experienced with tax matters, you might think that any profits made from selling cryptocurrency are tax-free, like the lottery or betting on a horse to finish first in a race.
The short answer is that no, these profits are not tax free. As with the profits made from buying and selling any asset, we need to consider the tax implications as a result of any such transaction.
The first important point of note is that HMRC now receives many millions of lines of data from various sources about transactions relating to UK residents.
We are aware that HMRC now receive data from cryptocurrency platforms and websites, so if you have registered with such sites and have traded in cryptocurrency, it is highly likely that your name is on that list of data somewhere.
Should you choose not to tell HMRC of the profits you have made through selling cryptocurrency, HMRC may issue an enquiry notice and this could lead to fines and penalties for your failure to declare a tax liability.
So, what is the correct treatment of the profit on selling Bitcoin / cryptocurrency for tax purposes?
For UK resident individuals, there may be either Capital Gains Tax or Income Tax due on the profits made from buying and selling cryptocurrency. Which tax the profits fall under will depend on how you have carried out the transaction(s).
If you have bought the cryptocurrency as an investment, hoping to make a profit over a longer period of time, then this is likely to be classed as a Capital Gains Tax matter. This is the view that HMRC appear to be taking with the majority of cryptocurrency transactions.
Exceptionally, if you are buying and selling cryptocurrency at such a high frequency and level of organisation to be considered trading, then HMRC may treat this as falling under the umbrella of Income Tax.
How do I tell HMRC that I have made a profit on selling Bitcoin / cryptocurrency?
As noted above, in most cases the profits will fall under the legislation relating to Capital Gains Tax. As such, you will report any profits or gains by way of the Capital Gains Tax pages on a Self-Assessment Tax Return.
UK residents currently have an Annual Exempt Amount of £12,300 which means that the first £12,300 worth of profits or gains are not taxable. Any profits or gains over this amount are subject to Capital Gains Tax and need to be reported to HMRC.
There are further rules which may mean that you need to report profits or gains, even though they fall under the £12,300 Annual Exempt Amount.
What happens if I made a profit from selling Bitcoin / cryptocurrency and haven’t told HMRC in time?
I have spoken to a number of clients who have made a profit from buying and selling cryptocurrency where they have asked if they take a chance at not declaring the transactions to HMRC as they did not think it likely HMRC would ever find out.
Our recommendation is that it is always preferable to disclose any failure to HMRC before they enquire into the transactions. This is true of any failure, not just in terms of Bitcoin / cryptocurrency.
HMRC have powers to acquire information about taxpayers from a wide variety of sources, ensuring that an audit trail can be formed to show that an individual has profited from the buying and selling of Bitcoin / cryptocurrency.
If HMRC commence an enquiry, there are much higher levels of tax-geared penalties that they may charge as a result of failing to declare such gains. Given the potentially significant levels of gains to be made from Bitcoin / cryptocurrency, the penalties imposed could become very high indeed.
What are my next steps
As this is a relatively new area of tax, it is recommended that anyone who is unsure of their circumstances seek professional advice as to how to correctly identify and report and profits or gains.
An mentioned previously, given the amount of data that HMRC hold and their powers to impose financial penalties on those who fail to disclose such gains, it is even more important that you have fully considered your filing responsibilities before HMRC contact you first.
If you require any assistance, please contact us on 0800 0016 878 or by email at firstname.lastname@example.org
Case Study 1:
We were approached by Mrs R to represent her elderly parents in dealing with all aspects of Capital Gains Tax on the disposal of a family property. Mrs R was extremely worried as her parents suffered terribly from health issues which were severely affecting their ability to cope with the stress of the situation.
We took a proactive approach and ensured agreement with HMRC that client’s parents were “digitally excluded” due to ill health and disability, enabling us to file paper returns.
We then took full responsibility for preparing Capital Gains Tax computations and filing these with HMRC, as well as producing a detailed Advisory Report for the client to explain exactly why we took the views that we did, all backed by tax statue - which was also included in the Report for ease of reference for the client.
Initial views from clients were that they were facing a tax bill of over £8,000 each and this was reduced to just over £2,000 each, entirely within the statute governing Capital Gains Tax.
All Capital Gains Tax returns were filed within the 30 days limit and the client praised our professional yet caring and sensitive approach to her parents.
Quotes from clients:
“This is absolutely amazing news and I/we cannot thank you enough.”
"Thanks once again for your invaluable assistance”
Case Study 2:
Mr D contacted us, thankfully before disposing of a property. Mr D had worried that a large Capital Gains Tax bill would become due once he had completed the sale, estimating the CGT due as being in the region of £31,000.
By using some recent legislative changes, we were able to advise Mr D to arrange his tax affairs prior to the sale in a perfectly legal and acceptable way from HMRC’s point of view which enabled us to reduce the CGT due to under £2,000. Mr D was obviously delighted with this saving of over £29,000 – a reduction of over 90%.
Indeed to date we have a track record of reducing the CGT or SDLT due for over 90% of our clients, many of whom see reductions similar in percentage terms to Mr D.
Quotes from client :
“Thank you for your voice of reason and assurance”
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