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Decrypting cryptocurrencies – the tax implications to consider

Cryptocurrencies or Cryptoassets - you may have heard of Bitcoin, but how about Dash or Ripple? People are buying and selling cryptoassets every day, but what are they and what are the tax implications? 

This relatively new asset has risen to such prominence that some companies now accept them as payment for goods and services, and with Facebook to launch ‘Libra’ in 2020 supported by Mastercard and Visa*, it looks like cryptocurrencies are here to stay.

People are buying and selling cryptoassets every day, but what are they?   

Cryptoassets are cryptographically secured digital representations of value or contractual rights that can be:

  • transferred
  • stored
  • traded electronically

Cryptoassets are not a recognised currency like Sterling, Dollar or Euro. They are held in digital form, so they are ‘intangible’ assets and each unit holds a certain value dependent on the market; however, they are not similar to shares, in the sense that holding these digital assets does not give you partial ownership of a ‘bigger’ asset, e.g. a company where you may have voting rights and receive dividends.

Importantly, the question that we must ask ourselves about cryptocurrencies is which taxes apply when we sell these assets for a gain and, more importantly, how much tax do we have to pay the Exchequer!

Currently, there is no formal guidance as cryptoassets are not mentioned in the tax legislation.  So where does that leave us? Fortunately, HMRC have provided some limited guidance on this matter.  Although this is not as authoritative as legislation, it does try to apply principles that are well-established in other areas. 

HMRC’s current view on what taxes apply is summarised below. It is only a matter of time though before cryptocurrencies make their way into the legislation, so watch this space! 

Main things to consider when it comes to tax…

Income Tax

HMRC will tax cryptoassets based on the pattern of your activity. If you buy and sell cryptoassets frequently, HMRC will likely consider this conduct a trade, therefore Income Tax will be applied to any trading profits you gain.

Capital Gains Tax

For the majority, buying and selling cryptoassets will normally amount to investment activity (rather than a trade of dealing in cryptoassets). Therefore, you’ll most likely pay Capital Gains Tax on any gains you realise including those on an exchange of one type of cryptoasset for another.



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