HMRC has issued a warning to cryptotraders who have amassed profits over £3,000 throughout the tax year. In a post on X on Thursday, February 26, the UK tax authority called on Britons to check the rules and make sure they haven’t forgotten to declare returns on cryptocurrency assets.
It shared a video showing an astronaut alongside a coin representing one of the digital assets, altering workers with crypto profits that have “gone to the moon” that they may be subject to Capital Gains Tax (CGT). “If your crypto profits have taken off, you may need to pay tax,” it wrote. “Crypto gains above £3,000 count towards your taxable allowance. Check if you need to pay tax on cryptoasset profits and make sure your tax status isn’t lost in space.”
It links to official guidance, explaining that you may need to pay CGT if you make a gain when you ‘dispose’ of cryptoasset tokens.
This refers to various things, including:
- selling them
- exchanging them for a different type of cryptoasset
- using them to pay for goods or services
- giving them to another person (unless it’s a gift to your spouse, civil partner or charity)
HMRC says UK taxpayers need to work out “total gains from disposing of certain assets, including cryptoassets”.
If total gains for the tax year (April 6 to April 5) exceed the Capital Gains Tax tax-free allowance, they must be reported to HMRC, and Capital Gains Tax must be paid.
It’s worth noting that you may also need to pay other taxes if you receive cryptoassets.
Traders have to work out the gain for each transaction they make, and it’s calculated differently if you sell tokens within 30 days of buying them.
HMRC’s guidance explains that gain is “normally the difference between what you paid for an asset and what you sold it for. However, there are some situations when you need to use the market value to work out your gain”.
“For example, if you have cryptoassets that have been transferred between ‘connected persons’,” i.e. people or entities with a close personal relationship.
Traders can deduct allowable costs and use capital losses on other assets to reduce their gain, but they’ll first need to report them to HMRC.
Deductables include things like valuations, transcation fees and advertising, but not the cost of mining activities like electricity and equipment.
“If you’ve paid Income Tax on any part of your cryptoasset token value, then you will not pay Capital Gains Tax on that amount,” HMRC explains.
“You’ll only pay it on any gain you make after receiving them. For example, if you dispose of tokens you received as earnings from your employment.”
It also explains rules you may need to be aware of about cost pools each type of token are grouped into, and what information will need to be provided.
You can find the full guidance on UK Government website laying out the records traders need to keep and how to submit all that’s required in your Self-Assessment Tax Return here.
