Are Cryptocurrencies Taxable?

Gains on the sale of cryptocurrencies, by individuals, are taxable.

They are taxable in one of two ways.

Scenario One, Currency held as an investment

If you simply purchased currency as an investment and then sell it this will fall under the capital gains tax rules.  The first £12,000 of the gain will be covered by the annual capital gains tax exemption, the remaining part of the gain will be taxed at 10% or 20% depending on whether the individual is a lower or higher rate tax payer.

In short, the maximum amount of tax to be paid on the gain is 20%.

Scenario Two, Currency traded as a business activity.

This is where things get a bit more complicated … and liable to a higher rate of tax, being up to a maximum of 45%.

To decide whether activity is business activity or not, we refer to the ‘9 badges of trade’, some of the badges that present challenges to cryptocurrency owners are listed below;

  • There is an intention to make profit ….. well yes of course !!
  • There are systematic and repeated transactions …. mining is an example of systematic and repeated transactions.
  • Money was borrowed to buy the asset that can only be repaid on sale of the asset…. it is entirely feasible that individuals have borrowed money to finance their cryptocurrency venture.

No one badge can be relied on in isolation HM Revenue and Customs, who will look at the picture as a whole to gain on overall impression.

The following link will take you to the HM Revenue & Customs guidance on the 9 badges of trade and provides far greater detail.

www.gov.uk/hmrc-internal-manuals/business-income-manual/bim20205

There is some good news for the trading income camp.  Taxable expenses can be deducted from the taxable income to reduce the amount profit on which the income tax is calculated.  For example, the utility bills for all the miners out there are tax allowable.

Conclusion

Yes, the gains on the sale of cryptocurrencies are taxable.

Tax may be payable at 10%/20%, or 45% depending on the nature of your activity.

If you have any queries or wish to discuss matters further in a free of charge consultancy session, please contact us on 01914877601.