Do you have tax confusion over cryptoassets? You’re not the only one
According to current estimates, there are around two million people in the UK who hold cryptoassets. If you’re one of them, you may have received a letter from HMRC, advising you about the potential capital gains tax (CGT) implications. Although most transactions involving cryptoassets are subject to CGT, it seems that many taxpayers are unaware of this, hence HMRC’s concern.
In particular, it is troubled by those who believe that transactions involving cryptoassets are tax-free. When you move tokens between different wallets, there is no disposal. But, even if you just exchange one type of token for another type, this will count as a disposal for CGT purposes, as will the following scenarios:
- Selling tokens (even if you don’t withdraw the proceeds)
- Using tokens to pay for goods or services
- Gifting tokens to someone other than your spouse or civil partner.
Think of the tax treatment for cryptoassets as being similar to that of shares, with each type of token ‘pooled’ when you buy or sell them. Perhaps due to how the media reports stories involving cryptoassets, there is a temptation to consider these transactions like a form of gambling, which is definitely not the case.
With an exchange of tokens, there must be an appropriate exchange rate established, in order to convert the transaction into sterling. Therefore, with several transactions, this could make working out your tax bill a complicated affair.
There is software available to help you, but if you hold cryptoassets, or are considering dipping your toe into this area this year, ensure you fully understand all the relevant guidance for tax treatment before making an error that could cost you dearly.
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