UK crypto-investors urged to check CGT liabilities if they take profits on soaring bitcoin

Bitcoin surged past $80,000 (£61,910 at current exchange rates) for the first time this weekend as Donald Trump’s grip on executive and legislative power in the US tightened. 

His administration is expected to be more friendly towards crypto-assets, and if the Republican party gains complete control of Congress, as seems likely, then global crypto investors are hoping for a more beneficial regulatory environment. 

That has seen the price of bitcoin soar from $67,814 on the eve of the US election to $82,170 at Monday lunchtime – a rise of 21.2 per cent in less than a week. In sterling one BTC is now worth £63,753. 

James Carn, Associate Director in Private Client Tax at professional services and wealth management firm Evelyn Partners, observes: 

‘The crypto-currency's rapid appreciation coincides with a tighter tax environment for investors in the UK, so if holders of bitcoin and other digital currencies decide to cash in or take profits, they need to watch out for a potential tax liability, or they could fall foul of HM Revenue and Customs. 

‘HMRC has been closing in on crypto profits, where it estimates there are high rates of non-compliance, in terms of gains not being declared. This year it has been sending “nudge letters” to those it suspects of failing to pay the correct tax on their crypto gains, warning recipients that if an assessment concludes that there is additional tax to pay on previously undisclosed crypto gains, there may also be interest due on any late payments as well as penalties to pay. 

‘For individuals, the basic message is that, if you have sold crypto for a profit during the tax year, you may have to report it by filing a tax return and you may owe tax.[1] This is all the more pertinent now that the CGT regime in the UK has become more restrictive. 

‘First, CGT rates have just gone up immediately from Budget Day on 30 October, from 10 per cent to 18 per cent for basic-rate taxpayers and 20 to 24 per cent for higher and additional rate taxpayers. Second, this comes against a background of much-reduced annual exempt amounts: as recently as 2023 investors were used to having a £12,300 allowance to play with before any capital gains in that tax year were taxable. Since April this year that is down to just £3,000. 

‘The surging price of bitcoin will probably see many crypto-investors in the UK take some profits – but how many will be aware that, in certain circumstances, they should be declaring the sale to HMRC on a self-assessment tax return? 

‘At the very least it might mean that many taxpayers who never usually have to bother with a tax return, as their tax affairs are dealt with through PAYE, must tackle self-assessment next year, when returns are due for the current 2024/25 tax year. 

'The tax treatment of crypto assets can be complex. However, in simple terms HMRC sees the profit or loss made on buying and selling of exchange tokens as within the scope of CGT. Its guidance says that only in exceptional circumstances will HMRC accept that buying and selling of crypto amounts to a trade for tax purposes – and would therefore be included in income tax liabilities instead.

‘Chargeable disposals are not just sales, but include exchanging a crypto-asset for something else, whether buying a good or service or changing to another crypto-asset, and giving away crypto-assets. HMRC has increased its attention on crypto-assets with a voluntary disclosure facility recently opened for undeclared income or gains from previous years.[2] If you have an unclaimed loss from the last four tax years then you can claim this by just writing to HMRC, and can then set it against gains.’ 

NOTES 

[1] You need to report if:

1. The gain exceeds the annual exempt amount (£3,000)
2. The proceeds are over £50,000 (regardless of whether there is a gain or even a loss)

If you file a tax return, then the disposals should be reported on there. If you don’t otherwise file a tax return, then you can choose between registering to file, or using the real-time capital gains service. If you are sure that gains are under £3k, and total proceeds are under £50k, then no reporting is needed, but keep careful records in case of a challenge.

[2] https://www.gov.uk/guidance/tell-hmrc-about-unpaid-tax-on-cryptoassets