How to Reduce Crypto Taxes in the UK? UK Crypto Tax

HMRC automatically impose a £100 late filing penalty for anyone who is required to file a return but misses the deadline; if you already have an online account, the penalty will be charged to it. According to HMRC, determining which party holds beneficial ownership of the asset would require an examination of the contract and terms and conditions. However, they may be subject to Capital Gains Tax when sold, swapped, spent, or gifted (excluding gifting to a spouse).

By planning sales around fiscal periods, one may possibly fall into a lower tax bracket, thus reducing the overall tax rate. Many cryptocurrency investors in the UK have no idea about the nation’s rules on taxation regarding crypto assets. The leading theory is that profits from crypto transactions are seen as lottery or gambling wins. To calculate your crypto taxes, you need to determine the gain or loss for each transaction.

how to avoid crypto taxes UK

Understanding when and whether CGT or Income Tax applies, and how these types of taxes work is crucial to finding the right strategies to avoid crypto taxes. The HMRC is proactive in its quest to ensure crypto traders don’t default on their tax payments. They regularly request info from Coinbase,, eToro, and other crypto exchanges in the UK. After receiving and analysing info from crypto exchanges, the HMRC serves defaulting traders and investors with notices. For a very long time, Bitcoin and other cryptocurrencies have been the dominant topic in many quarters. With the significant rise in the value of crypto in recent years, it’s difficult not to talk about them.

Cryptocurrencies are considered assets and are subject to Inheritance Tax if the total value of the estate exceeds the threshold of £325,000. Income tax rates in the UK vary depending on the level of income and where in the UK you reside. It’s essential to understand that income derived from cryptocurrencies is subject to Income Tax. As an employee, it’s important to keep records of the cryptocurrency received and its value in pounds, ensuring that your employer is fulfilling their tax obligations.

how to avoid crypto taxes UK

You can also consider investing in the venture capital trust offered by the government, where citizens with surplus funds can pool their assets and offer capital to emerging businesses in the country. Only in exceptional circumstances would they expect individuals to buy and sell exchange tokens with such frequency, level of organisation and sophistication that the activities amount to a trade in itself. According to the HMRC, you can deduct the amount you donate to a registered charity from your taxable income. Note how we said registered charity because you can’t just utilize this tax benefit by donating to any organization.

how to avoid crypto taxes UK

Remember to account for the annual tax-free allowance when calculating your gains or losses. As the cryptocurrency market matures, the UK’s HMRC has established clear guidelines on tax rates and allowances for crypto transactions. Whether you’re a seasoned trader or a casual investor, understanding these rates and allowances can help you navigate the complex world of crypto taxation. You can give your spouse crypto without having to pay tax on the profit. Yes, investors are required to report all crypto transactions, including losses, to HMRC if they are used to offset crypto gains.

It is essential to keep in mind that your income tax allowance also applies to the regular earnings from your employment, whether that be through PAYE or self-employment. Staking involves users holding digital assets within a particular protocol or chain in exchange for rewards, usually given in the same cryptocurrency that’s being staked. To stake, users must transfer their digital assets to a staking protocol, which will then utilize them to validate transactions on the network. Users are then rewarded for their staking contributions, with the rewards being distributed back to them as more digital assets, which they can hold or sell on an exchange.

This means that during this tax year, you could make gains of up to £12,300 from selling your cryptoassets without having to pay any Capital Gains Tax. This means that if the profits you earn from your crypto investments surpass these amounts, you are legally obligated to pay tax on those earnings. On the other hand, your total investment gains are tax-free if they fall below the thresholds for those tax years.

  • Therefore, it is imperative to comply with the tax regulations and responsibly report any gains you make from trading or holding cryptocurrencies.
  • Next, you need to work out how much your crypto was worth at the date and time you sold, swapped, gifted or spent it.
  • Many cryptocurrency investors in the UK have no idea about the nation’s rules on taxation regarding crypto assets.
  • That being said, we suggest you hire a tax professional before investing in an EIS or SITR as a tax-saving strategy.
  • It is imperative to be cognizant of these retention periods, as HMRC may request to inspect your records to verify that you have paid the correct amount of tax.

According to HMRC, crypto assets are subject to capital gains tax and income tax based on the nature of the transactions involving them. If a crypto asset is disposed of and that results in a capital gain, then the event attracts a capital gains tax. Your crypto taxes should be reported using the SA100 form in your self-assessment tax return, as you’ll need to report any crypto subject to income tax or capital gains tax. For more details on reporting these taxes specifically, please refer to the CGT and income tax sections at the top of this guide. This strategic approach involves selling crypto assets that are at a loss to offset gains made on other investments in the same tax year.

What we can conclude from this is that for you to qualify as a trader, you should actually have a business trading and not merely a hobby. While it is unlikely taxpayers with an extremely high trade volume may be eligible to report their actions as trading, not investing. These have all the information required for you to report your crypto gains.

Although you are not required to pay Capital Gains Tax on losses, keeping track of and reporting them will reduce the amount of tax you have to pay. As shown above, the tax-free income threshold for individuals is £12,570. If you have taxable income over £125,140, you are not entitled to any personal allowance. For more information on specific areas of paying your self-assessment tax return, refer to HMRC’s payment page. If an airdrop of an NFT has no value or is a scam, you can report it for £0 or a nominal amount and send it to a burn address.

If you discover this, don’t overlook it and sweep it under the carpet. Here’s how much tax you’ll be paying on your income from Bitcoin, Ethereum, and other cryptocurrencies. That means it’s important to keep track of your transactions across all of your wallets and exchanges.

This change means you need to be more cautious and strategic with your crypto transactions, as the buffer before you start incurring CGT is now smaller. However, no Capital Gains Tax is due on the value of the tokens you’ve already paid Income Tax on, but you will have to pay the tax on any gain you make after receiving them​​. If HMRC accepts this claim, the person will be treated, for tax purposes, how to avoid crypto taxes UK as having disposed of the tokens and immediately re-acquired them at a negligible value. This allows the individual to realise a loss, which can be relevant for tax calculations. Consequently, if you are receiving new tokens or coins on a regular basis as a result of your DeFi activities, there’s a higher likelihood that this will be considered earned income and be subject to Income Tax.