Last Updated: October 10, 2023
The UK is aiming to become an attractive destination for cryptocurrency investors. With the rise of digital assets, many countries have been forced to reconsider their current tax policies, and the UK is no different.
In 2021, HMRC released its guidelines on the taxation of cryptocurrency transactions and earnings. UK crypto taxes for this year must be filed by January 31st, 2023. As such, cryptocurrency investors need to understand the framework to avoid potential tax penalties.
We have created a simple overview of UK crypto taxes to support cryptocurrency holders in this endeavour. We will show you how to use a cryptocurrency tax calculator that can determine one’s liability. For comprehensive resources, check out our UK crypto knowledge base.
The Current Tax Landscape for Crypto in the UK
In the UK, His Majesty’s Revenue and Customs (HMRC) designate the cryptocurrency activity of an individual as either business or hobbyist activity.
You may be concerned that your transaction volume puts you in the business category, but most investors and traders will be deemed hobbyists. If you work a regular job alongside your crypto transactions - odds are you’re a hobbyist. Depending on how you’ve received the cryptocurrency in question – trading, staking, mining, payment for goods or services – you will be subject to different taxes for said activities.
It’s important to note that the tax treatment of crypto can vary depending on the specific circumstances of each case. Therefore, it’s always best to consult with a tax professional or seek advice from HMRC if you have any questions or concerns about your crypto tax obligations.
Understanding Capital Gains Tax (CGT)
Capital Gains Tax (CGT) is a tax on the profit you make when you sell or dispose of an asset that has increased in value. In the case of crypto, this means that if you buy a cryptocurrency and then sell it at a higher price, you’ll need to pay CGT on the difference.
Here are the tax rates for cryptocurrency in the UK:
- If your overall annual income is below £50,270, you will pay 10% of your capital gain until you reach £50,270 in total earnings for the tax year. Anything over £50,270 will then be taxed at 20%.
- If your overall annual income is above the £50,270 threshold, you will pay 20% of your entire capital gain.
Some exemptions and allowances can help reduce the amount of tax you owe:
- Tax-free allowance of £12,300: the first £12,300 of your capital gain will be tax-free.
- £1,000 tax-free Trading Allowance for mining and staking.
For example, let’s say you have a capital gain of £20,000, and your overall annual income is below £50,270. Applying the tax-free allowance of £12,300 means that only £7,700 of your capital gain would be subject to tax. At a tax rate of 10%, you would owe £770 in tax on your capital gain.
Using Our Cryptocurrency Tax Calculator
If you want to calculate your cryptocurrency tax liability in the UK easily, we recommend using a crypto tax calculator like CoinTracker.
Simply sign up for an account and quickly integrate all your exchanges and wallets. The platform will handle the rest, and show you your profits or losses, so you can decide if you want to harvest losses and know how much you’ll need to pay.
To get a rough estimate of what you owe, you can replace the placeholders below with your own numbers:
- If your overall annual income is below £50,270 and your capital gain is X, your tax liability would be calculated as follows: X capital gain - £12,300 tax-free allowance = Y taxable gain x 10% tax rate = Z tax liability.
- If your overall annual income is above £50,270 and your capital gain is X, your tax liability would be calculated as follows: X capital gain - £12,300 tax-free allowance = Y taxable gain x 20% tax rate = Z tax liability.
Remember to put your own numbers in the placeholders (X, Y, and Z) to get a calculation of your tax liability. Sign up for CoinTracker today to quickly and accurately calculate your cryptocurrency tax in the UK.
Keeping Record of Your Crypto Transactions
One of the essential requirements for calculating your crypto taxes is keeping accurate records of all your crypto transactions. This includes not only your buy and sell orders but also any other transactions involving crypto – such as receiving crypto as payment for goods or services, or transferring crypto between different wallets.
To ensure you have all the information you need to calculate your crypto taxes, it’s important to keep track of the following details for each transaction:
- Date of the transaction
- Type of transaction (buy, sell, receive, etc.)
- Amount of crypto involved
- Price of the crypto at the time of the transaction
- Any fees or expenses associated with the transaction
Keeping good records not only makes it easier to calculate your crypto taxes, but it can also help you minimize your tax liabilities by identifying any losses that can be offset against your gains. So make sure to keep track of your crypto transactions, and use our calculator to help you calculate your taxes accurately and efficiently.
How can CoinTracker help with my crypto taxes and portfolio?
CoinTracker is a popular crypto tax and portfolio management software that helps users track their crypto transactions and calculate their tax liabilities. The platform offers features such as the automatic import of transactions from exchanges and wallets, automatic calculation of capital gains and losses, and the ability to generate tax reports for different jurisdictions, including the UK.
CoinTracker saves users time and effort. Instead of manually tracking and calculating their crypto transactions, users can rely on the platform’s automation features to do the work for them. This can be especially helpful for users with large and complex portfolios or for those who are new to the world of crypto and taxes.
In addition to its tax and portfolio management features, CoinTracker also offers a range of educational resources to help users learn more about cryptocurrencies and the tax implications of using them. The platform provides articles, guides, and tutorials on various topics, including sample letters for those who received a warning letter from the tax authorities.
Overall, CoinTracker is a valuable tool for anyone in the UK who is interested in using cryptocurrencies and wants to stay compliant with the tax rules. By using CoinTracker, you can easily manage your crypto taxes and portfolio, and gain peace of mind knowing that you’re complying with the law and avoiding any potential tax liabilities.
We hope you found this article on UK crypto taxes helpful. By understanding the current tax landscape for crypto in the UK and using our exclusive cryptocurrency tax calculator, you can ensure that you’re meeting your tax obligations and minimizing your tax liabilities. Check out our complete UK Crypto Tax Guides for further guidance on HMRC’s tax rules.
If you have any questions or concerns about your crypto taxes, we encourage you to contact us on Twitter. Thanks for reading, and happy tax season!