Made money on crypto currencies? Here’s how you could be taxed.

Crypto currencies are a hot topic at the moment. They’re controversial, risky and volatile – but are probably here to stay. Some have experienced phenomenal growth.

The price of Bitcoin, for example, rose from around $1,000 a coin in early January 2017 to nearly $18,000 in mid December 2017, when it peaked. The price has now dropped to around $8,500.

Despite the volatility and risks of crypto currencies, some people will make money from them. And when you make money, you pay tax.

So how does HMRC tax crypto currencies?

HMRC provided guidance on crypto currencies back in 2014. The guidance is a bit out of date now, but the fundamentals remain the same. There are three potential ways you could be taxed:

  1. Capital Gains Tax (CGT) – if you make gains on crypto currency investments, you are likely to be liable to CGT. So it’s important to keep records and declare any gains on your annual tax return.
  2. Income Tax – if you trade in crypto currencies with the aim of making short-term gains, then HMRC may consider you a trader. In that case, the gains would be subject to income tax.
  3. Gambling Tax (i.e. zero) – this is a tricky one, but should speculating on crypto currencies be considered gambling? Generally speaking, if you’ve actually purchased a crypto currency then it’s considered a commodity – so any gain would be subject to CGT. But you could potentially bet on them without actually owning any.

Financial authorities may be sceptical of crypto currencies, but they’re still keen to tax them – and it’s important to keep that in mind.

Guidance is available from HMRC, but it’s a few years old now.

Here at Johnston Kennedy, we can provide you with up to date advice.

 

For more information, call us on +44 (0) 28 9045 6333 or
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info@johnston-kennedy.com

 

This blog post provides general information only and may not apply to your particular circumstances.