Are Crypto Gains Taxed in the UK?
This article introduces the different kinds of crypto tokens that can be used for exchange or trading in the UK and proceeds to breaking down tax filing for beginners in the crypto market.
Whether you’re a tech-savvy entrepreneur or just majoring in English Literature to try your hand at writing romantic novels, the prospect of earning money is the one thing common between us all – no matter the age, occupation or nationality. Whichever category you belong to, cryptocurrency is a buzzword we’re sure you have at least heard, if not discussed, among your social circles. Is it worth the hype? Absolutely yes. If not, why would everyone from Elon Musk to Kanye West own a couple of cryptos or endorse them globally?
If you have already bought a few cryptocurrencies or have invested in them, you’d know the basics, but for the newbies, we’re telling you – cryptocurrency is the future, and totally worth your time. And especially if you are in the UK and have laid hands into crypto mining, you’ll love to hear that it’s a great move, and you need to continue the stint because, in no time, you’d be earning a whopping billion tokens, but keep in mind that nothing worth ever comes for free. So is the same with crypto. To be precise, your crypto profits are taxed, and if you plan to remain inside the crypto market, you have to understand the A to Z of crypto taxes, filing and so on. Let’s take a look at what you need to know:
Crypto Wallets in the UK
Crypto wallets in the UK reaping huge profits has now caught the attention of the HMRC (Her Majesty’s Revenue and Customs), who recently published detailed guidelines for filing cryptocurrency taxes. However, the HMRC has categorically stated that crypto assets are not being counted under money; instead, they have grouped them under four main classifications:
Exchange tokens: These are tokens that are officially registered as those that can be used for payment within the UK. Bitcoins, the largest cryptocurrency, is allowed to be used as an exchange token.
Utility tokens: These are tokens that enable owners and users access to a specific list of goods and items as listed in the HMRC guidelines. Utility tokens can access platforms with DLT.
Security tokens: As the name suggests, these tokens can be utilized to invest into particular interests and aspects of the business from gaining ownership, repaying an amount of money or to buy entitlement to share in any kind of future profitmaking.
Stablecoins: These are crypto tokens that fit the value of fiat currency and can be utilized wherever fiat transactions are enabled.
Filing taxes on cryptocurrency in the UK
According to the HMRC, anyone owning a crypto wallet or in possession of crypto assets as a solely personal investment is liable to pay taxes on profits made from the particular assets. However, one only has to pay capital gains tax on total profits above the exempted amount.
It must be noted here that only individuals who receive currencies from crypto mining, confirmation rewards, airdrop and crypto as salary from an employer, have to pay taxes. The crypto wallets that are donated to charity are exempted from taxes unless the donation amount is larger than the acquisition costs. Similarly, capital losses incurred from crypto wallets can be classified under tax liability. If you’re a crypto trader and happen to sell crypto for losses, then the loss can be deducted for reducing the total capital gain. In addition to these, anyone involved in crypto exchange for fiat or crypto for another crypto, is liable to pay taxes. Overall, it’s simple to remember that your crypto wallet and shares portfolio are alike – if you make a profit in each or both of these – you will be liable for taxes in the UK.