How A Cryptocurrency Is Taxed In The United Kingdom
Trading and investing in the likes of Bitcoin ...
POSTED BY HELEN BEAUMONT ON 26/01/2018 @ 8:00AM
With little regulation and wild value fluctuations, you have to have nerves of steel to invest in a cryptocurrency. You also need to know how a cryptocurrency is taxed in the United Kingdom ...
Cryptocurrencies such as Bitcoin have become more and more popular. But you need to know how a cryptocurrency is taxed in the United Kingdom before getting involved!
copyright: yourg / 123rf stock photo (licensee)
I had a knock at the door the other day. A friend had been reading about Bitcoin and was thinking of investing. His question was about taxation and it inspired me to do some research and write this blog post.
"But first, what is a cryptocurrency?"
I mentioned Bitcoin above as the most well-known cryptocurrency but there are many others out there. They are digital currencies (no physical coins) and use something called a 'blockchain' which records and validates transactions.
Bitcoins (and other coins) are 'mined' by solving complex mathematical formulas. If coins are added too quickly then the formulas that need solving are automatically tweaked and made harder, so there is a regular and constant supply of cryptocurrency for that particular blockchain.
In 2017, Bitcoin had a bumper year with transaction volumes up 55% and each coin grew in value from $900 to around $6,300 in October 2017. As of writing this blog post, a whole Bitcoin was worth $11,259 (and it has been higher recently too!).
"So cryptocurrencies look like a great investment opportunity, don't they?"
The first thing I have to say is, "Maybe, but only invest what you can afford to lose". I think that's a sensible rule for any investment really. The second thing is about taxation and how HMRC will treat any income or gains you've made from dealing or investing in Bitcoin or any other cryptocurrency.
If you're involved in the mining, exchange or payment processing of a cryptocurrency such as Bitcoin, then you are classed as a trader. Under current tax rules, VAT is not applicable to these transactions. If you have bought or sold something using a cryptocurrency then it will be treated as a cash-based transaction and VAT will apply.
"In both cases, there will be corporation tax on any income from Bitcoin or another cryptocurrency!"
But what if you're simply investing for growth? There are many people who bought cryptocurrencies some years ago, and because of the phenomenal growth, now find themselves to be 'Bitcoin Millionaires' and unsure if they need to declare it.
The simple answer is that HMRC will regard any increase in value as being liable to Capital Gains Tax. But tax will only apply when the bitcoins are converted into another currency, such as GBP, USD or even another cryptocurrency. Capital gains tax is currently charged at 10% or 20% depending on the level of the taxpayer’s overall income.
"HMRC are happy that current rules are good enough, but expect that to change!"
If you'd like to know more about taxation on cryptocurrencies and what activities are classed as trades and what are investments then do give me a call on 01908 774323 or click here to ping me an email and let's see how I can help you.
Until next time ...
If you're looking to work with an expert tax advisor with a wide range of tax experience, do visit www.essendontax.co.uk to find out more about me and discover how I can help!
More about Helen Beaumont ...
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’s specialist knowledge in tax planning and experience ensures 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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