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Ho, ho, ho… it’s almost crypto Christmas! 🎄
With the festive season just around the corner, you might be considering gifting something a bit more futuristic this year… crypto! 💳 How very internet-era of you! But as ever like the ghost of Christmas past, HMRC is looming over to remind you not to forget the tax implications.
If you had no idea tax was even a consideration, then read on!
If crypto isn’t your thang, here’s a quick rundown of the basics. Crypto is short for cryptocurrency. It’s a form of digital currency. Some examples of crypto coins and tokens are Bitcoin, Ethereum and XRP.
The whole concept of crypto is extremely advanced and technical but it’s pretty interesting, too. First of all, it’s created using encryption algorithms. Just wow.
Second of all, it’s distributed outside of government control unlike traditional currencies such as GBP or USD.
And thirdly, it doesn’t actually have any central authority at all. It’s governed democratically, by the crypto bro masses 🤯
But despite all of this, it doesn’t mean that crypto isn’t subject to taxation.
Crypto is classed as a valuable asset, which means you’ll most likely have to pay Capital Gains Tax (CGT) if you gift it to someone.
The general rule is that when you sell crypto (or any valuable asset), you have to pay CGT on any profit that exceeds the £6,000 CGT allowance (in the 2023/24 tax year). So anything less than £6,000 is tax-free, and unlike other taxes, only profit is taxable.
Gifting crypto, however, is a tad bit techy so listen up. 🗣️
If you’re gifting to a friend, parent, or anyone but your spouse, you’ll need to:
🎁 If you gift crypto to your spouse, you won’t have to pay any tax on this (and your other half will never even suspect you’ve forgotten to get them a gift this year.) 🎁
Donating crypto to selected registered charities is also tax-free.
There are two rates for CGT on cryptocurrency:
The rate you pay depends on your income:
Bear in mind that the Capital Gains Tax rates are different for different assets i.e the highest rate of CGT for crypto is 20%, but the highest rate of CGT for property is 28%.
Read more about the CGT rates here.
Generally, you’ll only have to pay Capital Gains Tax if you give crypto to someone as a gift.
If you receive crypto as a gift, you also usually won’t have to pay any tax unless you decide to sell it on or even go as far as gifting it to someone else… which would be pretty bold. But hey, we’re not judging. 🤷
Picture this: it’s the morning of the 25th December and you hand your brother a little ribboned box. When he opens it, there it is – a crypto wallet. 🤩 OK, technically a crypto wallet would be online and not in a box, but run with us here.
Well after explaining to the rest of the family the reason the box is empty, you’ll then need to register for Self Assessment (if you haven’t already).
Then you’ll have to work out how much Capital Gains Tax you owe. This sounds daunting, we know, but you can just use our CGT calculator. 👇
Your total capital gains tax (CGT) owed depends on two main components:
Your overall earnings determine how much of your capital gains are taxed at 10% or 20%.
Our capital gains tax rates guide explains this in more detail.
In your case where capital gains from shares were £20,000 and your total annual earnings were £69,000:
You pay no CGT on the first £12,300 that you make
You pay £127 at 10% tax rate for the next £1,270 of your capital gains
You pay £1,286 at 20% tax rate on the remaining £6,430 of your capital gains
🚨 To make sure you pay the correct amount of tax (and just incase HMRC request further information), you should keep a record of your crypto profits, transactions and/or expenses.
You can generate a crypto transaction summary through Koinly when using TaxScouts’ tax return service. The first 1,000 transactions are free! 🚨
You have until 31st January (following the end of the tax year) after selling/gifting your crypto to pay Capital Gains Tax. To avoid any penalties, it’s probably best to make preparations as soon as possible (you don’t have to wait until 25th December to start the process.)
👉 Remember, profit under £6,000 is not subject to Capital Gains Tax.
Gifting crypto is super ultra-modern and might just trump everything else under the tree this year. 😌 So don’t let the tax implications put you off!
Our accredited accountants have a wealth of experience in handling Capital Gains Tax for crypto, and will be more than happy to sort yours, too!
All you need to do is provide us with a Capital Gains Tax report from your online trading platform. Or you can generate a crypto tax report through Koinly once you’ve paid for your TaxScouts tax return. We’ll handle the rest!
Find out more about this service here.
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