Cryptocurrencies: Do You Need to Pay CGT?
HMRC’s Cryptoasset Manual explains when individuals may need to pay Capital Gains Tax after (any):
- Selling cryptoasset exchange tokens (e.g. cryptocurrency).
- Exchanging tokens for a different kind of cryptoasset.
- Using tokens to pay for other goods or services.
- Gifting (giving away) tokens to another person (an exception may apply for gifts given to a spouse or civil partner).
Note: Other guides contain details on the current Capital Gains tax allowances (e.g. the Annual Exempt Amount) and how to check if you need to pay tax when you receive cryptoassets or donate tokens to charity.
Working Out Gains in Crypto Transactions
You must calculate the gain of each transaction to determine whether you need to pay Capital gains Tax. But, the process differs if you sell crypto asset exchange tokens within thirty (30) days of buying them.
A simple definition of the gain is the difference between the purchase price and the selling price. You would need to use CGT market value rule to work out the gain if the asset was free of charge.
There would be no need to pay CGT on the value of any tokens if you already paid Income Tax on them. But, you would still need to pay it on the gain made after receiving them.
Deducting Allowable Costs
Costs you already deducted against profits for Income Tax purposes, and mining activities such as for equipment or electricity, cannot be deducted.
You can include a proportion of the pooled cost of the tokens when you deduct any ‘allowable costs’ or use capital losses to reduce a gain. Remember to report CGT losses to HM Revenue and Customs (HMRC) beforehand.
What if the total taxable gain is more than the annual tax-free allowance? If so, you must report and pay Capital Gains Tax to HMRC.
Hence, working out the gain is part of checking if you need to pay tax when selling cryptoassets. But, you will be able to deduct certain kinds of ‘allowable costs’, including:
- Advertising fees (e.g. to buy or sell tokens).
- Drawing up any contractual agreements connected to the actual transaction.
- Making a valuation (e.g. needed to calculate the chargeable gain of a transaction).
- Transaction fees paid before the actual transaction gets added to a blockchain – defined as a digital ledger of transactions duplicated and distributed across the entire computer systems network.
Note: The Capital Gains Tax (CGT) Guide explains more about how realised profits work (e.g. chargeable gains) in the United Kingdom.
Working Out Pooled Cost of Tokens
If you own different types of tokens, you will need to group them into pools to work out the ‘pooled cost’ for each type – every time you buy or sell cryptocurrencies (e.g. like pooling shares in a company).
You will be able to reduce the gain by deducting an equivalent amount of the pooled cost if you sell tokens (plus any other allowable costs). But, different rules apply to pooled costs in situations where there has been a ‘hard fork’ in the blockchain.
Thus, you should add the amount you paid for the tokens to the appropriate pool when you buy them and deduct an equivalent proportion of the pooled cost from the pool when you sell them.
Note: Another help guide explains more about CGT when you sell shares and how to work out the cost if you sold the same type of shares in a company bought at different times.
Buying and Selling Tokens of the Same Type
You do not need to group tokens into separate pools, if:
- You buy and sell the same type of tokens on the same day.
- You buy them within thirty (30) days of selling the same type of tokens.
The ‘Self Assessment helpsheet HS284‘ explains the rules for buying new tokens of the same type within a thirty day period of selling the old ones.
Reporting and Paying Capital Gains Tax
You can choose to fill in a Self Assessment tax return (e.g. at the end of the appropriate tax year) or use the real time service to report and pay Capital Gains Tax to HM Revenue and Customs.
Tax rules differ for people who are not resident in the United Kingdom. Nonetheless, you would need to complete your tax returns in pound sterling.
Keeping Records for HMRC
When keeping your pay and tax records, you will need to be able to show separate evidence for each transaction you made for each type of token, as well as details about (all):
- When you sold them (the ‘disposal’ date), how many, and the pooled costs before and after selling them.
- Bank statements and wallet addresses.
- The value (must be recorded in pound sterling).
- How many tokens you have left.
Note: Another section explains more about HMRC tax compliance checks, such as how they conduct inspections and what steps you would need to take if they want to check your records.
Related Help Guides
- Best commercial software for Self Assessment.
- SA302 example template to provide evidence of self employed earnings.
- What to do if someone owes you money and refuses to pay?
Note: Another section explains more about cryptocurrency rules and regulations and the basic strategies for trading crypto (e.g. Bitcoin, Ethereum).