Cryptocurrencies have gained significant attention in recent years, not only as a form of investment but also as a means of payment. With this rise in popularity, HMRC has been closely monitoring the taxation of cryptoassets ...
In addition to CGT, individuals who receive cryptoassets through mining or airdrops will also be subject to income tax!
First and foremost, it's important to understand that HMRC treats cryptoassets as property for tax purposes, rather than as currency. This means that any gains or losses from buying, selling, or exchanging cryptoassets will be subject to capital gains tax (CGT).
This also means that individuals who hold cryptoassets for personal use, such as buying goods or services, will not be subject to income tax!
When it comes to CGT, the rules are similar to those for other types of assets. Any gains made will be subject to tax at the individual's applicable CGT rate. However, there is an annual tax-free allowance of £6,000 for individuals (reducing to £4,000 from April 2024), which can be used to offset these gains. It's important to note that this allowance is shared with other types of assets, so it's crucial to keep track of all gains and losses.
"One of the biggest challenges is determining the value!"
HMRC requires individuals to keep detailed records of all transactions, including the date, time, and value of each transaction. This can be particularly challenging for those who hold multiple types of cryptoassets and make frequent transactions. However, it's important to maintain accurate records to ensure proper tax compliance.
In addition to CGT, individuals who receive cryptocurrency through mining or airdrops will also be subject to income tax. The value of the assets received will be included in the individual's taxable income and will be subject to income tax at their applicable rate. It's important to note that this also applies to any rewards received from staking or lending cryptoassets.
"For businesses that accept cryptocurrency as payment the rules are slightly different!"
The value received will be included in the business's taxable income and will be subject to corporation tax. Any gains or losses from buying, selling, or exchanging any form of cryptoassets will also be subject to corporation tax.
It's also worth noting that HMRC has introduced a new manual, which provides guidance on the taxation of cryptoassets in the UK. This manual is regularly updated as HMRC's approach continues to evolve.
"My advice is to stay updated on any changes!"
Keeping detailed records and understanding the different tax implications for individuals and businesses will help ensure proper tax compliance. By staying informed and up-to-date, you can ensure you always pay the right amount.
Until next time ...
Would you like to know more?
If anything I've written in this blog post resonates with you and you'd like to discover more about the taxation of cryptoassets whether you're an individual, self-employed or a limited company, it may be a great idea to give me a call on 01908 774323 and let's see how I can help you.
Helen brings the personal tax planning experience of the top 20 tax companies to Essendon. Formerly of MacIntyre Hudson (with 45 offices nationwide), Helen worked at Chancery for more than 10 years before joining Essendon as the personal tax specialist.
Tax Planning can make a considerable difference to your tax liability. Helen has specialist knowledge and experience in tax planning and uses every opportunity to minimise your tax bill is utilised. By analysing your investments, income, profit and expenditures, Helen will provide strategic tax planning expertise that could offer significant savings, whilst delivering clear, honest advice and guidance.
When Helen is not at Essendon she spends time with her young son and likes going on long walks with the family dog.
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