Taxing Cryptocurrency Profits

New guidance was published by HMRC in December 2018 on how they will seek to tax individuals’ profits from cryptocurrencies.

In summary, HMRC have identified a number of disposal scenarios where there could be a capital gains tax liability. These include selling cryptocurrencies for money, using them to pay for goods and services, gifting of cryptocurrencies, and exchanging them for another.

The latter may be of particular concern for investors that regularly trade between different cryptocurrencies. An article from the Tax Journal suggests that, in practice, trying to report such disposals is likely to be “extremely difficult”, particularly where more “niche cryptocurrencies are involved.” This is mainly due to the lack of officially published sterling prices.

The majority of casual investors should be covered by their annual CGT exemption.  However, when capital gains exceed this they will be subject to CGT. This will be at 10% or 20% depending on whether they are a basic or higher rate taxpayer.

The guidance includes details on when income tax is liable – including mining, fees from mining and airdrops – as well as income tax and national insurance contributions on any cryptocurrencies received as earnings.

It is evident that HMRC has clear expectations that individuals should keep accurate separate records in respect of each transaction.

HMRC is also due to publish guidance of the taxation of cryptocurrency transactions involving businesses and companies.