Taxing of Crypto-Currency Profits

New guidance was published by HMRC in December 2018 on how they will seek to tax individuals’ profits from crypto-currencies and January’s Tax Journal offers an excellent review.

In summary, HMRC have identified a number of disposal scenarios where there could be a capital gains tax liability.  These include selling crypto-currencies for money; using crypto-currencies to pay for goods and services; gifting of crypto-currencies and exchanging crypto-currencies for another crypto-currency.  The latter may be of particular concern for investors that regularly trade between different crypto-currencies.  The Tax Journal article suggests that “in practice, trying to report such disposals is likely to be extremely difficult, particularly where more niche crypto-currencies are involved”.  This is mainly due to the lack of officially published sterling prices.

The majority of casual crypto-currency investors should be covered by their annual CGT exemption.  However, when capital gains exceeds 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 also 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 crypto-currencies received as earnings.

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

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