Cryptocurrency Gains are not tax free

Written by Gavin Stebbing on 3 October 2018

The Association of Taxation Technicians (ATT) has issued a warning to individuals who have been investing or trading in cryptoassets to make sure that any tax consequences are reported to HMRC.

While the world of cryptoassets might be virtual, with users keeping their holdings in digital wallets secured by digital keys, it is possible to make very real profits, gains or losses which should be declared to HMRC on a self-assessment tax return.

Jon Stride of the ATT’s Technical Steering Group has confirmed that while the tokens themselves are not tangible, trading or investing in them can generate some very real tax liabilities which HMRC will want to know about. Individuals need to keep clear records of the different types of token that they hold. Many people believe that gains only arise when cryptoassets are exchanged for currency such as sterling which is legal tender. In fact, it is possible for a taxable gain or loss to arise when exchanging one cryptoasset for another.

An individual investing in cryptoassets who has made gains in excess of their annual exempt allowance (£11,300 for 2017/18) or disposed of more than £45,200 of assets in 2017-18, or who wants to claim an allowable capital loss is required to report their disposals on a self-assessment return. Relief is not available for a capital loss unless the loss is reported to HMRC on a tax return (or in some cases by letter). Individuals can make a claim for capital losses up to four years after the end of the tax year of disposal.

One key issue for some individuals will be determining whether the nature of their activities means that they are trading in cryptoassets or investing in cryptoassets. Traders will be subject to income tax on any profits or losses while those investing will be subject to capital gains tax. In general, most individuals engaged in cryptoasset transactions are likely to be investors and not traders.