Capital Gains Tax (CGT)
The most common transactions individuals undertake with cryptoassets are the buying and selling of a particular token as an investment. As with other assets you buy and sell as an investment, you pay CGT when you make a gain on a disposal. Similar to other assets, you can deduct associated costs of disposal and acquisition, such as the purchase price, transaction fees and valuations.
HMRC’s latest guidance details the rules that it deems applies to the disposal of cryptoassets. Most importantly, a pool needs to be created for the base cost of the particular token when calculating the capital gain. There are various rules that apply to share and cryptoasset pooling and this is further complicated by exchanges and software associated with cryptoassets that are often not developed to assist with tax reporting, unlike share portfolios. Care should therefore be taken by individuals making a significant number of trades, as it will be their responsibility to correctly report any capital gains made to HMRC.
As well as reporting capital gains, individuals can also claim capital losses when their investment has been disposed of at a loss. HMRC advises that negligible value claims will be accepted when an asset’s value has become worthless with no chance of recovery, but care should be taken in cases where the private key, which provides access to the wallet where the cryptoassets are stored, has been lost.
This can occur, for example, when a password is simply forgotten, stored on hardware which is lost, or becomes inaccessible. In these cases, there would need to be evidence that the key cannot be retrieved, rather than it simply being misplaced. Where the key is misplaced, a negligible value claim may not be accepted by HMRC.
For non-domiciled individuals claiming the remittance basis of taxation, care should be taken when reporting cryptoasset gains. The question of where cryptoassets are located is one that has not yet been determined and HMRC’s opinion on the matter raises a number of questions.