As we head towards the end of the current UK tax year it is timely to remember the tax reporting requirements associated with gains made on cryptoassets for UK tax residents and to plan ahead.
In the recent budget, the chancellor announced that from the 2024/25 UK tax year there will be a separate category on the self-assessment tax return for reporting gains and losses made on cryptoassets. The treasury anticipates that this will generate an additional GBP 10 million in revenue per year.
Whilst the rules on taxation of crypto assets have not changed, the treasury is hoping that the separate category will raise awareness of the requirement to report gains made. This comes as a timely reminder as we approach the end of the current tax year to consider your tax reporting requirements.
HMRC treats cryptoassets as capital assets. Therefore, when you dispose of a crypto asset the transaction will be subject to capital gains tax treatment. Disposal of crypto assets includes selling crypto for fiat, trading crypto for crypto, spending crypto on goods/services and gifting crypto (unless to your spouse). The gain or loss is calculated by taking the GBP value of the crypto asset at the date of disposal, less the GBP value of the crypto asset at the date of acquisition.
In the UK there is a GBP 12,300 capital gains tax-free allowance for the 2022/23 UK tax year. This means you can realise gains of up to GBP 12,300 without paying capital gains tax. If this allowance is not used within the tax year, it
does not carry forward and as such you will lose it. The capital gains tax-free allowance will be reduced to GBP 6,000 for the 2023/24 UK tax year and to GBP 3,000 for the 2024/25 UK tax year and beyond.
Note that there are specific rules around the same crypto assets bought and sold on the same day and within a 30-day period. As such it is not possible to sell an asset solely for the purpose of realising the gain and then repurchase it within 30 days.
If your total capital gains for the year are in excess of the capital gains tax-free allowance, then you will need to register for self-assessment and report your gains to HMRC. If your gains are less than the capital gains tax-free allowance, then you do not need to report your gains to HMRC unless you are already registered for self-assessment and your total proceeds of assets sold are more than four times the tax-free allowance.
It is important to note that not all transactions involving crypto assets are subject to capital gain tax treatment and certain transactions may instead be subject to income tax. For example, rewards received from mining, airdrops and staking are likely to subject to income tax on the GBP value of the assets at receipt. Future gains/losses made on a subsequent disposal of the asset are subject to capital gains tax treatment.
Capital gains tax will be due on gains made in excess of the allowance and will be subject to capital gains tax at 10% or 20% depending on your total income and gains. Income tax due on relevant crypto asset transactions will be due at 20, 40 or 45% depending on your total income and gains.
For more information please see HMRC’s guidance on crypto asset taxation
here.
