What are Crypto Assets?
Crypto assets also known as cryptocurrency and tokens is a digital currency which can only be used over the internet. It is secured through cryptography and managed through the decentralized system and therefore it does not allow any interference from any other authority such as a bank or the government. This reduces the chances of fraud because only the sender and the recipient can view the transaction.
Location of Crypto Assets for Tax purposes
The crypto assets are decentralized and this means that by nature they don't have a location. However it is important to determine the location of the bitcoin for tax purposes.
The location of the bitcoin is important for tax purposes for 2 reasons:
- It will determine what taxes you will pay if you are resident in the UK incase you sell it
- It will also determine what taxes you will pay as non UK domiciled individuals if you sell the asset
The location is also important to determine if the inheritance tax needs to be paid on the crypto assets because only the non UK domiciled individuals are only subject to IHT on UK situated assets.
The location of the crypto asset will be determined by the 'residency of the beneficial owner' this means that the person who holds exchange tokens is liable to pay UK tax if they are UK resident and carry out a transaction with their UK tokens which is subject to UK tax*
When will I have to pay Capital Gains tax on my Crypto assets?
HMRC expects you to pay capital gains tax in the following situations:
- Sell your tokens
- Exchange your tokens for a different type of crypto asset
- Use your tokens for goods or services
- Give away your tokens to another person, however, you won't have to pay tax if you give your tokens as a gift to your spouse or our civil partner.
- You might also have to pay capital gains tax if you donate your tokens to a charity
You will be paying capital gains tax on your crypto assets if you are a resident in the UK and you have done any of the above transactions.
What will I pay?
You will pay capital gains tax on the gain that you will make as a result of selling, giving away or exchanging your tokens.
If your gain is above your tax free allowance (annual exempt amount) which is £12 300 then you will pay CGT through your self assessment tax return.
The tax rate you pay depends on the income tax rate band you fall into. If you are in the higher tax rate band you will pay 20% on the gains you make,however, if your total income falls in the basic tax rate band you will pay 10% on the gains that you make. You might be eligible for business asset disposal relief, in which you will pay tax at a reduced rate.
Don't forget to deduct allowable costs which will help reduce your gains for example costs of:
- Any transaction fees paid
- Advertising for buyer or seller
- Drawing up a contract for a transaction
- Making a valuation so you can work out gain for the transaction.
If you want to buy or sell crypto assets and need any guidance to pay income tax or capital gains tax you can contact accountants in croydon, Taxaccolega and our expert team of accountants will be happy to help you.
Source: https://www.gov.uk/guidance/check-if-you-need-to-pay-tax-when-you-sell-cryptoassets#report-pay
https://www.gov.uk/government/publications/tax-on-cryptoassets