Crypto enthusiasts will know that just because you didn’t know about the tax liable on cryptocurrency gains doesn’t mean you don’t have to pay it. Ignorance is no defence against the taxman.
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But there are ways of reducing the tax you have to pay, and they are all entirely legal.
The main tax a holder of bitcoin is most likely to pay is on any gains made when selling the asset. This is called Capital Gains Tax (CGT). Like any investment, if you don’t do anything to make the value increase, it’s seen as something of a windfall – and the government wants a share of the action.
You are liable for tax on the gains you make selling cryptoassets for cold hard cash, exchanging cryptoassets for a different type (i.e. bitcoin for ripple), using cryptoassets to pay for goods or services or giving them away to someone else.
Importantly, you can give the cryptos to a spouse or civil partner and not be liable for gains… but you are just handing over the liability to them to sort out.
Also, don’t think you can just offload them onto a charity, as HMRC can take a view that you are doing it just to get out of paying what you owe.
However, CGT only kicks in after you’ve made £12,000 in one tax year across all the assets you have sold or disposed of – this includes houses, fine wines, expensive watches etc. This is the allowance you are given annually by Her Majesty’s Revenue and Customs.
There are ways you can offset the tax, too.
Firstly, you can knock off the amount in pound sterling that you originally paid for the asset – in this case, crypto. So, if you paid £100 for a wallet now worth £1,000, you are only liable for £900. You can offset transaction fees paid before the transaction is added to a blockchain and the cost of any advertising you did to find the cryptos initially or when you decided to sell.
Any professional costs you incurred drawing up a contract for when you bought (or even took ownership for free) and disposal of the cryptoassets can also be set against gains.
And happily, the cost of working out how much you can offset against gains is also something that can be counted as one of these allowances.
It is up to you as the owner and seller of the assets to make HMRC aware of your activity, just as it is with any other kind of tax. Make sure you are up to speed with your allowances – and make the most of them.
Check out eToro’s crypto tax calculator to see if you owe tax on crypto.
Applicable to UK taxpayers only.
The post Making the most of your bitcoin (by maxing your tax) appeared first on Global Coin Report.
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