Crypto Tax UK: A Comprehensive Guide

In recent years, cryptocurrency assets have grown in popularity in the tax world and piqued the interest of investors and industry regulators, but what exactly are the crypto tax UK rules?

As the industry around cryptocurrency rapidly evolves, the tax situation has become more complicated. The emergence of distinct and complex cryptocurrency platforms, such as gaming and gambling platforms, and the evolution of non-fungible tokens and hybrid tokens for specific purposes have altered the asset class.

There may be the opportunity to take advantage of more favorable tax rules if you are not resident or domiciled in the UK for tax purposes. What are the regulations on paying taxes on the crypto asset?

Cryptocurrency (or crypto assets) are electronic currencies that can be transferred, stored, and traded. Ideally, it is almost impossible to counterfeit or double-spend on cryptocurrencies. This is due to their technologically advanced nature, secured by cryptography. Furthermore, the emergence of new technologies has enabled the creation of crypto assets in various forms.

Who is responsible for paying taxes on crypto assets? The short answer is that anyone who lives in the UK and owns crypto assets may be subject to taxation. Current regulations deem you liable to pay tax when you trade, mine, receive as payment, receive as an airdrop in place of a service (or expected service), or exchange for any crypto asset.

Let's take a look at the various taxes you may be required to pay when trading, disposing of, or exchanging any crypto assets:

Income Tax

Occupation is a factor when HMRC decides how to tax crypto assets. For example, if the holder happens to be a trader, their trading profits will be subject to Income Tax. If the activity is considered professional trading, Income Tax takes precedence over Capital Gains Tax and applies to general profits and losses.

Capital Gains Tax

Whether you traded, sold, or exchanged any crypto assets, you will almost certainly be required to pay Capital Gains Tax (CGT). You may also be subject to CGT if you use your cryptocurrency to pay for services or goods. Cryptoassets will be taxed at the Capital Gains rate of 20% for those classified as higher or additional rate taxpayers. On the other hand, basic rate taxpayers will be taxed differently, and the rate charged will be determined by one's taxable income.

Inheritance Tax

Inheritance Tax may be due upon death when dealing with crypto assets. Therefore, Inheritance Tax planning should be considered.

In conclusion, crypto assets are a prime example of how much the tax world has evolved and how new technologies influence day-to-day industry operations. Therefore, as a trader, investor, or industry regulator, you must understand what crypto assets are and the implications of their use.

Cryptoassets are a valuable new type of investment vehicle, and the UK Government has a vested interest in taxing crypto trading profits. Unfortunately, because the technology is still relatively new, HMRC has not had sufficient time to catch up fully. As a result, there are several loopholes and blind spots in UK tax law that make it unclear how certain crypto assets should be treated. If you trade crypto, you would be well advised to consult a tax professional.

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