A key point to note here is that HMRC views different types of cryptoassets as separate assets for capital gains purposes. The swapping of your Bitcoin for, say Polkadot token, will trigger a disposal for capital gains tax purposes https://www.tokenexus.com/ even if no actual currency has been received. HMRC has not provided specific guidance for the treatment of ICOs or IEOs, but since this is very similar to a crypto-to-crypto transaction, the same taxation principle applies.
- To calculate your capital gain, take the cost base of the cryptocurrency you sold and subtract it from the fair market value of that asset on the day you traded it for another cryptocurrency.
- The amount of income recognized then becomes the cost basis in the coin moving forward.
- For Capital Gains Tax purposes, this will be considered sales proceeds.
- While there’s no way to legally avoid your crypto taxes, there are strategies that you can use to reduce them.
- HMRC has released clear guidance on the treatment of cryptocurrency received as both airdrops and hard forks.
- If you’ve earned more than the annual allowance in total chargeable gains, including gains on cryptoassets, then you may have to pay capital gains tax.
If you decide to keep the crypto assets in a wallet, they will be part of your pool and the GBP value will be included in the total allowable cost for that specific cryptocurrency. If you decide to sell the coins in the future, you may have to pay Capital Gains Tax if the cryptocurrency has appreciated in value. On the other hand, if the cryptocurrency has depreciated in value, you will realize a capital loss that can be used to offset other capital gains.
Calculating your crypto tax bill
When disposing of crypto assets, you calculate gain or loss for capital gains tax. HMRC defines disposal as selling crypto for fiat, exchanging one cryptocurrency for another cryptocurrency, and giving away crypto to another person (as a gift or in exchange for goods or services). You report capital gains and losses on supplementary pages SA108 of your SA100 tax return.
If you made a profit when disposing of your crypto, you have made a capital gain and you must pay Capital Gains Tax on that gain. If you instead made a loss, you have made a capital loss on that transaction and you do not pay Capital Gains Tax. However, it’s important to keep track of your capital losses since these can be used to offset your capital gains. In the case of hard forks, where you receive a new coin because of a fork, you will not be required to pay any Income Tax on the receipt of these coins. To calculate your capital gain or loss, subtract the cost basis of the asset you disposed of from the fair market value of the asset on the day you traded it. Then, add your additional crypto income to your regular income to see if you’re still in the same Income Tax Band.
Cryptocurrency as miscellaneous income
As already mentioned, it’s important to be aware that the deadline is October 31st, 2022 if you report your taxes using paper forms instead of online. If you file your tax return late, miss the deadline for payment, or file an incomplete tax return, you might have to pay a penalty. If you lose your private keys and cannot access the cryptocurrency anymore, the asset is still technically owned by you since it exists on the blockchain.
Once you’ve registered your cryptocurrency losses, you can carry them forward indefinitely. However, you have a four year time limit to register your capital losses. After this period, you can no longer register your Crypto Taxes in the United Kingdom losses and use them to offset gains. In the United Kingdom, capital losses can be used to offset your capital gains for the year. If you have a net loss for the year, it can be carried forward into future tax years.
If you buy and sell tokens of the same type
If you make a profit, you have a capital gain and must pay Capital Gains Tax on it. If you have a loss, you have a capital loss, and you will not have to pay Capital Gains Tax on it – but you should keep track of these because they can reduce your tax bill. We’ll go over this in more detail later, but first, let’s look at an example of calculating tax on a cryptocurrency capital gain. Further, if that individual goes on to dispose of those cryptoassets and realises a gain, that gain may be taxable in the UK too, without the benefit of the remittance basis of taxation. As individuals increasingly earn income on their cryptoassets, that income may be considered UK source and taxable on an arising basis as well.