So you’ve been investing in cryptocurrency, and, well… You’ve been doing OK? Maybe your NFT has gained in value, or you bought the dip perfectly and now you’ve doubled your profits. Well done!
It’s true that crypto trading and investing is not easy and that if you do make good money, it’s a genuinely thrilling moment.
But, do you need to declare your crypto gains to HMRC?
To answer that simply: yes. There is no getting around it, but declaring crypto on your self assessment tax returns is an essential.
But we’re gonna take a closer look at the world of declaring your crypto in the UK.
How do I declare crypto in the UK
To declare crypto in the UK, you will need to register to pay taxes online via the Government Gateway, or HMRC’s online portal.
What you’ll need to do is signup to pay tax online (basically setting up as self employed) and then declare your crypto activity every year as either a capital gains/investment (if you’re holding long term), or as income (if you’re a trader).
You may need to pay tax on any gains, but you can also offset any losses against tax.
So, for example, if you’re already self employed and you invested £5000 in crypto, but that value has dropped by 50%, you could declare that £2500 as a loss which may come off your tax bill.
However, if you also made the same trade but gained £2500, this may go towards your capital gains tax or be declared as part of your income.
For capital gains, your allowance is £6000 in profits each year. Once you exceed this amount you will need to pay tax on it.
Can I give my crypto away to avoid paying tax?
Some people think that transferring digital currency to a partner or friend might help them avoid paying tax on it. Unfortunately, it isn’t that simple.
If you transfer some of your assets to your spouse, you can avoid paying tax on it, but they will need to declare it and they may need to pay tax when they sell it.
If you transfer your assets to a charity, you will not pay tax on it. However if you sell an asset to a charity, you will have to pay some tax on it.
Technically, disposing of an asset is a taxable event, whether you’re selling it or simply giving it away.
In short, you will need to declare what you have done with your cryptocurrency or asset and then that can be calculated by HMRC.
How can I work out my crypto tax total?
Working out exactly how much crypto tax you need to pay can be, to put it mildly, complicated. It will depend on the net profits you have realised, which assets you’re holding and what you have lost value on. You might even be holding assets that have completely lost their initial value, or you might even have crypto held in obscure wallets or exchanges.
The best thing to do is use a form of crypto accounting software such as Cryptio.
At the very least, you can keep a spreadsheet of crypto records to track your investments. If you’re not already doing this then you really should be.
Another good way to work out your crypto tax is… To get someone else to do it. A crypto accountant can help you put your accounts in order and help you understand what crypto taxes you need to pay.
Can I avoid crypto tax in the UK?
Paying your taxes is one of those things we all need to do. Unfortunately no, there is no way to avoid paying tax on your crypto trading or assets in the UK. Be aware also that if HMRC do catch you avoiding tax on your crypto, you could also be hit with some pretty heavy fines.
So, save yourself the stress and headaches and pay those crypto taxes!