Taxing a cryptocurrency
2018 has not been particularly kind to Bitcoin after a booming 2017. But anyone who invested more than a year ago should still be showing a substantial gain.
There are now more than 1,500 cryptocurrencies, and some have seen much larger gains, especially for those investing in a currency’s initial coin offering (ICO). So if you are now cashing in, what are the tax consequences?
HMRC issued guidance on how cryptocurrencies should be taxed in 2014, but this has not been updated as they have evolved. There is no mention, for example, of the tax treatment of free coins received following a cryptocurrency forking into two new currencies.
Each gain made when a cryptocurrency is converted into pounds sterling has to be considered on a case-by-case basis. A highly speculative transaction, such as the initial investment in an ICO, could be considered like gambling and therefore exempt from tax.
However, as cryptocurrencies have become more mainstream, and with more investment advice available, such treatment is now much less likely to apply. Gains will therefore normally be subject to capital gains tax. After the £11,700 exemption, the rate is 10% where a gain falls within a person’s basic rate tax band, and 20% above that.
Be warned that the Treasury intends to crack down on cryptocurrencies because of tax evasion concerns.