How Cryptoassets are taxed in the UK

An expected seventy three percent of individuals are expected to invest in cryptoassets before the end of 2022. With this in mind, understanding how digital assets are taxed in the UK is essential. Furthermore. HMRC are now clamping down on crypto exchanges to share information about their customers to ensure the correct tax is being paid.

Defining cryptoassets

Cryptoassets are officially defined as cryptographically secured digital representations of value or contractual rights that can be transferred, stored, and traded electronically.

Currently, HMRC do not consider cryptoassets to be currency or money, and have identified three types:
Exchange tokens (like bitcoins); Utility tokens; Security tokens.

The current HMRC guidance currently only considers the taxation of exchange tokens in the UK.

Capital Gains Tax

If you hold cryptoassets personally versus via a company, you will be liable to pay capital gains tax (CGT) when you sell them.

If you hold a large portfolio of crypto assets yet to be cashed in, you will need to consider planning for a large tax bill when you do. In the current tax year, all individuals have an annual exemption of £12,300 to utilise before paying any tax on gains made on assets, which will help reduce your tax burden.

If you’ve been trading in cryptoassets, so buying and selling, and made any gains (even if only in a digital sense), then depending on those gains, you could still face a CGT tax charge.

Income Tax & National Insurance Contributions

You will be liable to pay income tax and National Insurance contributions on cryptoassets received in these situations:
*If you receive cryptoassets from your employer as a form of non-cash payment;
* For ‘mining’ or from ‘airdrops’.

Inheritance Tax Planning

Cryptoassets which are held by UK residents for tax purposes are viewed as being held in the UK, even though they are digital assets.

As a result, when estate planning for inheritance tax purposes. cryptoassets will be included in your estate for inheritance tax purposes.

Cryptoassets Tax Advice

Crypto investors are facing an increasingly complex tax landscape in the UK with HMRC guidance being under constant review. If you’re unsure how HMRC’s requirements impact you, or need help submitting the correct information, please get in touch to see how Mirandus can help.