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Tax on crypto assets: everything you need to know

As the crypto industry is rapidly growing, tax authorities in the UK and worldwide are enquiring into crypto businesses, traders and investors to make sure that everyone involved in it pays tax on it.

The arrival of new and more complex cryptocurrency, - like gaming and gambling platforms, - or the evolution of non-fungible tokens has changed the asset class, making the position on tax more complicated. 

Continue to read to find out below how crypto assets are taxed in the UK!

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What is a crypto asset?

A crypto asset is a digital currency, which uses cryptographic techniques to make it impossible to be copied. The technology used to transfer cryptoassets is called "blockchain" and it uses a peer-to-peer technology.

Until other financial assets, there is no central bank to manage the crypto assets' system which, for this reason, is decentralized.

 

Do you have to pay taxes on crypto assets?  

Unfortunately yes - at least for most investors. From a tax perspective, crypto assets are considered the same as shares - as financial institutions don't consider crypto assets to be currency or money - and, for that reason, are taxed the same way.

If you are not considered a tax resident in the UK or if you have not a domicile in the country, you can benefit from more advantageous tax rules when it comes to crypto assets.

 

When do you pay tax on crypto? 

Most people think that you only pay tax when you sold your crypto, but this wouldn't be far from the truth. In fact, you will be taxed when:

 

 1. You buy and sell crypto 

When you sell your crypto, you will pay Capital Gains Tax on the profit. If you didn't make any profit though, those losses could minimise your tax bill! 

It's important to remember that your first £12,300 of capital gain is tax-free.

 

2. You are paid in crypto 

If you receive crypto as a compensation for work, you will also pay Income Tax and National Insurance, regardless of the cryptocurrency.

 

3. You inherit crypto

Under the UK tax law, cryptocurrency is classed as property, so you also need to pay tax on it.

 

4. You mine and validate

Mining cryptocurrency can be considered a hobby or a business, depending on factors like organisation, risk, degree of activity and commerciality.

If you receive tokens from mining and you aren't trading, these will be treated as other taxable income and are subject to Income Tax. 

You will need to complete a Self Assessment tax return, unless you're received cryptoassets worth less than £1,000 and less than £2,500 from other untaxed income.

 

What is the deadline for reporting my crypto taxes?

The financial year in the UK runs from April 6th to April 5th of the following year.

The paper deadline for reporting your crypto taxes is October 31st, 2022 or January 31st, 2023 if your submit it online.

 


 

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Published by Elisa Ribeiro Soares
Elisa Ribeiro Soares