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How do you tax Bitcoin? Are cryptocurrency or cryptoasset gains or profits, taxable? Can you obtain tax relief if you make losses on Bitcoin? 

A freeview 'At a glance' guide to how cryptocurrencies and cryptoassets are taxed in the UK.

Subscribers see How are Bitcoin, cryptocurrencies or cryptoassets taxed in the UK?

At a glance

HMRC has confirmed in its Cryptoassets manual that:

Overview and examples

What is a cryptoasset or cryptocurrency?

There many different types of cryptoassets. 'Cryptocurrencies ' such as Bitcoin (BTC) are just one variation. 

A cryptocurrency is a type of cryptoasset which shares many similarities with other currencies.

How to tax profits or gains made on cryptocurrency: individuals

Trading or investment?

The key test to determine if you are trading for tax purposes is to apply the Badges of Trade

If your gains on disposal are taxed as capital, section 104 TCGA pooling will apply.

See How are Bitcoin, cryptocurrencies or cryptoassets taxed in the UK?

Deduction of costs

s.38 TCGA deals with Deductible expenditure for CGT purposes and applies to cryptoassets that are subject to CGT.

HMRC’s view is that deductible costs will include:

CGT Share pooling

See How are Bitcoin, cryptocurrencies or cryptoassets taxed in the UK? for HMRC share pooling examples. 

Location of exchange tokens such as BTC

The location of exchange tokens such as BTC is primarily relevant for Non-domiciled individuals using the Remittance basis and for Inheritance Tax (IHT) purposes. 

How to tax profits or gains made on cryptocurrency: Businesses

A business is liable to pay tax on activities they carry out which involve exchange tokens, such as:

HMRC have identified several ways in which exchange tokens might be subject to Corporation Tax including:

For tax return purposes non-sterling cryptoassets must be converted into sterling.

Taxed as trading income

As for individuals, the question of whether a trade is being carried on is key and the Badges of Trade apply. Relevant factors include:

If a business’s activities amount to a trade, the receipts and expenses form part of the calculation of trading profit.

Taxed as intangible assets

Companies that account for exchange tokens as Intangible assets may be taxed under the Corporation Tax (CT) rules for intangible fixed assets if the token is both:

See How are Bitcoin, cryptocurrencies or cryptoassets taxed in the UK?

Taxed as investments (chargeable gains)

See How are Bitcoin, cryptocurrencies or cryptoassets taxed in the UK?

Deduction of costs

CGT Pooling

Other areas to consider

Mining activities

HMRC's view is that:

Where mining is a trading activity the exchange tokens form part of trading stock and normal trading rules about transfers to and from stock apply. See How are Bitcoin, cryptocurrencies or cryptoassets taxed in the UK?

Record-keeping 

Cryptoasset exchanges may only keep records of transactions for short periods. The onus is on the taxpayer to keep their own records for each transaction in case of HMRC review or enquiry. 

Stamp duty, Stamp Duty Reserve Tax (SDRT) and Stamp Duty Land Tax (SDLT)

HMRC will consider on a case-by-case basis whether a transfer of exchange tokens meets the requirements for stamp duty or stamp duty reserve tax to apply. 

HMRC consider that Stamp Duty Reserve Tax will apply if tokens are given as consideration for purchases of ‘chargeable securities’. The same applies for Stamp Duty Land Tax (SDLT) if tokens are given as consideration for a purchase of land.

Employment reward

See How are Bitcoin, cryptocurrencies or cryptoassets taxed in the UK? for how to tax cryptoassets as employment reward and the difference between readily convertible assets (RCAs) and non-RCAs.

VAT

The HMRC Cryptoassets manual states:

HMRC powers

See How are Bitcoin, cryptocurrencies or cryptoassets taxed in the UK?

 


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