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So, when is crypto subject to Income Tax? If you’ve been reading about crypto and the tax implications that come with it, then you might be familiar with Capital Gains Tax. But, depending on the situation, you might also have to pay Income Tax on your crypto earnings.
Capital Gains Tax is tax on profit that you make over £6,000 by selling assets. Assets can be anything from rental properties to shares, and in this case, also cryptocurrency. Cryptocurrency in the UK is considered a capital asset and not an actual currency such as GBP.
Not quite. You only pay tax on gains after £6,000 in profit during a tax year. This means that if you do not make profits over this amount, you won’t need to pay any Capital Gains Tax. This is called the Capital Gains Tax allowance.
The amount of Capital Gains Tax you would pay differs, depending on the asset you’re selling and making a profit from. The below table highlights some of the most popular assets and their current rates for the 2023/24 tax year.
|Type of asset||Basic rate||Higher rate|
Don’t worry, we’re not going to make you dig up those maths skills you’ve worked so hard to bury and avoid. Instead, you can use our calculator. Input all the information required that applies to you and work out how much CGT you should pay.
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
There are some instances where crypto is not only considered a gain that supplements your main income, but as the main income itself. This means that instead of being additional income on top of your usual wage, earning through crypto is now your main activity and brings in the majority of your income.
💰 Spending crypto
💰 Selling crypto
💰 Exchanging crypto
HMRC can take the view that your pattern of buying and selling of cryptocurrencies is considered “trading”, which means that you are generating the majority of your income through crypto trading and you can be charged Income Tax.
💰 Mining tokens
💰 Staking rewards
💰 Getting paid in crypto (which you also pay National Insurance on)
💰 Airdrops (but only those that are made in return for, or in expectation of, a service)
Income Tax is tax that you pay on your regular earnings. You only pay it if, during a full tax year, you earn more than £12,570. This is called a Personal Allowance. Many people pay Income Tax through Pay As You Earn (PAYE). With this method, the tax you owe is automatically taken off before you’re paid your wages or pension. Your employer will know how much to deduct based on your tax code.
You also need to pay Income Tax in some other situations, like the ones mentioned below. In these cases, you would file and submit a Self Assessment tax return.
The amount of Income Tax you pay is based on the amount of money you earn. You’ll only be taxed on your earnings, after the tax-free Personal Allowance of £12,570. The rates and income thresholds are set by the government and are currently as shown below.
|Up to £12,570||0%||Personal allowance|
|£12,571 to £50,270||20%||Basic rate|
|£50,271 to £125,140||40%||Higher rate|
|over £125,141||45%||Additional rate|
In order to calculate exactly how much tax you’d pay based on your earnings threshold, you can use our Income tax calculator.
When you’re self-employed, you have to pay your income tax and national insurance contributions yourself in your annual Self Assessment. Our calculator helps you quickly assess how much you owe.
However you may be eligible for a tax refund when:
In your case when you earn £50,000:
You pay no income tax on first £12,570 that you make
You pay £7,286 at basic income tax rate (20%) on the next £36,430
No contributions on the first £9,568 that you make
You pay £3,549 in contributions (at 9%) on the next £39,432 that you make
You pay £159 in NI Class 2 contributions
Basically, the tax rules with crypto are ever-changing as society, along with HMRC, learn to adapt and accept it into the mainstream. There have now been cases where HMRC have taxed people Income Tax as opposed to Capital Gains Tax due to a certain person’s patterns, when buying and selling crypto. Once you are considered to be “trading” crypto, this automatically is taxed as regular income because it is your main activity and brings in the majority of your earnings. If trading crypto is your full-time career and where you make the majority of your income, then Income Tax is applied.
The amount of Income Tax you pay depends on what income band you’re in from the table mentioned above. There are also some instances where you may need to also make National Insurance contributions too.
Yep, crypto can be subject to Income Tax. Determining whether you’re going to be subject to CGT or Income Tax is down to what your primary income is and how much of your total income crypto accounts for. It also depends on what you do with your crypto assets.
It is important to know what you’ll be taxed on and to stay up-to-date with news from HMRC regarding cryptocurrency. If you haven’t already, you should read up on the cryptoassets manual that HMRC provides on their website. As crypto continues to grow and evolve, we’ll keep you up to date on the tax side.
Well, listen up. We teamed up with Koinly to bring you a quick and easy solution: a tool to create crypto tax reports. Want to get your crypto tax report generated and tax return filed all in one? Look no further. Up to 1000 transactions totally free!
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