Cryptocurrency investments are rising in popularity, with 1 in 10 UK adults holding some kind of crypto assets. Understandably, many UK investors are wondering how to correctly calculate and pay tax on their crypto earnings.
His Majesty’s Revenue and Customs (HMRC) has clear guidelines on crypto taxes that every investor needs to understand. Follow our simple guide to calculate your tax liability and avoid any penalties from HMRC.
In the UK, cryptocurrency taxes fall under Capital Gains Tax (CGT) rules. This means you’ll pay CGT on any profits when you dispose of crypto assets that have increased in value.
Your overall income level determines what rate you’ll pay. If your total income is below £50,270, you’ll pay 10% CGT on crypto profits. Above this threshold, it’s 20% CGT. An annual tax-free CGT allowance of £12,300 applies to all individuals.
Figuring out precisely what you owe HMRC takes careful calculations. Here’s a quick, step-by-step guide:
This gives your total CGT bill. Pay any mining or staking income above £1,000 at your Income Tax rate .
Doing these calculations for dozens of trades can be extremely complex. That’s where a crypto tax calculator becomes invaluable, and there are plenty of ready-made solutions on the market. Most allow you to upload or connect with exchanges and wallets.
Once you’ve found the platform you like, simply upload your transaction history into the calculator. Most will handle CGT computations automatically and generate a tax report. Each service will have its own rules and unique features, so make sure you get in contact with the service provider if you need assistance.
For those crypto traders and holders without experience filing a personal tax return, these platforms take the hard work out of reporting to HMRC. You’ll know precisely what tax you owe on crypto profits.
Thorough record-keeping is crucial for accurate tax calculations. Keep notes of:
With detailed records, a tax calculator can swiftly do the number crunching to determine your CGT obligations.
Paying tax on crypto gains is compulsory, not optional. With tips from our guide and a quality tax calculator, you can easily stay compliant with HMRC. Report your crypto profits accurately and on time to avoid headaches later on.
If you’re a user of any centralized cryptocurrency exchanges, be extra vigilant. Kraken, a US-based exchange, has recently been forced to hand over thousands of American users’ details to the IRS for tax purposes. Whilst this does not include the UK, there is no guarantee it won’t forever.
And remember, in all jurisdictions, the burden of proving your tax compliance rests on your shoulders, not on the tax authorities.