The very purpose of crypto was to create a borderless currency that would be free of government regulation. But digital currencies have become a phenomenon. They have grown in popularity and have become an integral part of the financial system all over the world.
Because of that, government agencies are taking notice, including Her Majesty’s Revenue and Customs. Bitcoin and other cryptos are taxable assets. While taxation laws are different in different countries, the UK has a very rigorous tax regime.
Lately, Her Majesty’s Revenue and Customs has been stepping up the enforcement of these laws in an effort to catch crypto tax evaders. You don’t want to be caught in this net and the first thing you can do to avoid it is to familiarise yourself with the crypto tax laws in the country. Well, we will try our best to give you all the information you need.
Crypto Tax Laws
The first batch of crypto tax laws in the UK was released in 2018. The laws were a result of a comprehensive report presented by the crypto assets task force. The task force was a joint initiative by the HMRC and the Financial Conduct Authority. The report presented several suggestions but more importantly, they presented a pathway that could be followed towards the taxation of crypto assets in the country.
When these laws came into effect, the first step by the HMRC was to send requests for information to all UK-based crypto exchanges about all UK crypto investors. It was the same move the IRS pulled in the US in its efforts to tax cryptocurrencies. The HMRC also made it clear that crypto tax evaders would face prosecution. Well, to avoid any legal issues, there are several things you need to know.
Crypto is an Asset
First of all, crypto is an asset. Even though it is a digital currency that should be viewed in the same way as other fiat currencies, the HMRC sees it as a financial asset just like stocks, bonds, and others. Secondly, it is important to note that crypto transactions are taxable, but with some exceptions.
There are three main taxable crypto transactions. First, converting digital currencies into fiat currencies will attract a tax charge. Additionally, exchanging crypto to crypto (e.g Bitcoin to Ethereum) is also taxable. Offering crypto as a gift will also be taxed unless the gift is offered to a spouse or a civil partner.
In essence, any transaction of crypto that leads to capital gains is taxed. It is important to keep an accurate record of all your transactions. The HMRC may at some point request a record for these transactions so be sure to have them.
Additionally, the amount of tax payable for crypto assets will be determined by your income tax bracket. The HMRC may, however, use additional methods to calculate your tax bill. Either way, the digital currency industry is on the radar of the HMRC and the agency seems very committed to going after crypto tax evaders in the country.