Crypto Taxes: What to Declare Before You Buy?

Q: I am thinking about buying some cryptocurrency but before I do, I wanted to understand the tax implications. What do I have to declare in terms if I do go ahead? Is it taxed in the same way as my income?

A: Cryptocurrency (Bitcoin, for example) has become a more and more popular investment in recent years. According to FCA figures, the number of consumers holding cryptocurrency has risen to 2.3 million – from 3.9% to 4.4% of adults. The median holding has risen from £260 to £300.

You would think the clue is in the name – currency. Surely, it’s money and taxable in the same way? No. In fact, it’s not considered currency by HMRC and is not seen as the equivalent of money. How is it treated? As a traditional asset. So, in most cases – certainly when we’re talking about an individual as we are with yourself, it counts as a personal investment. You will not have it taxed as income, but you will be liable to pay Capital Gains Tax when you dispose of any crypto assets you have.

It is different, however, if you received cryptocurrency from your employer as a form of non-cash payment. Then it would be liable to Income Tax and National Insurance contributions.

It’s worth noting another rare exception, which HMRC explains here: “there may be cases where the individual is running a business which is carrying on a financial trade in crypto assets, and they will therefore have taxable trading profits. This is likely to be unusual, but in such cases Income Tax rules would take priority over the Capital Gains Tax rules.

Although it might not be an immediate consideration for you, it’s also worth noting that crypto assets will be considered as property for the purposes of Inheritance Tax.

Lastly, anyone thinking of investing should be in no doubt that HMRC is keeping an increasingly close eye on cryptocurrency ownership. It’s been reported in the national press in recent weeks that a new wave of tax investigations has begun into crypto investors. If you want to dive into any more detail about the repercussions for CGT and other tax liabilities, do get in touch.