This article provides a summary of cryptocurrency taxation in the UK. It focuses on “exchange tokens” (such as Bitcoin and Ethereum) and is not intended to be comprehensive.
The main tax rules that apply to UK resident individuals are:
- Capital gains tax (CGT) generally applies to any gain made on a cryptocurrency disposal, which is usually calculated as the difference between the purchase price of the cryptocurrency and the disposal proceeds;
- CGT is payable at a rate of 10% or 20% depending on the circumstances and subject to an annual allowance of £12,300 for the 2021/22 tax year;
- Unrealised gains (i.e. “paper gains”) are not taxed. However, a disposal for CGT purposes includes exchanging the cryptocurrency for another cryptocurrency or any other asset;
- If the cryptocurrency activities constitute a “trade” based, for example, on their frequency, level of organisation and intention of the individual, income tax (rather than CGT) may apply to any relevant gains. Income tax rates range from 20% to 45% depending on the circumstances and subject to an annual allowance of £12,570 for the 2021/22 tax year;
- Cryptocurrencies held by an individual at the time of their death are included in the individual’s estate and may be subject to inheritance tax. The standard inheritance tax rate is 40%. Inheritance tax is only charged on the part of an individual’s estate that is above the £325,000 threshold.
The main tax rules that apply to UK legal entities are:
- When a company disposes of cryptocurrencies it held as an investment, it is liable to pay corporation tax (CT) on any gains realised from the disposal. CT is payable at a rate of 19% for the 2021/22 tax year;
- When a partnership or limited liability partnership (LLP) disposes of cryptocurrencies it held as an investment, the partners (or members) are liable to pay CGT (if they are individuals) or CT (if they are companies) on any gains realised from the disposal;
- If the cryptocurrency activities constitute a “trade” (see above), income tax (rather than CGT) may apply to any relevant gains realised by any partners (or members) who are individuals.
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Disclaimer: This article provides general information only. It is not comprehensive and does not constitute the provision of legal, tax, investment, regulatory or other advice. FSREG is not responsible for any action taken or omitted to be taken on the basis of the information contained in this article. © 2021 FS REG Limited (www.fsreg.com). All rights reserved.