Her Majesty’s Revenue and Customs (HMRC) recently announced the cryptocurrency tax guidelines for individuals in the country. Notably, no new punitive tax measures are applied to crypto, essentially falling under existing taxation schemes.
The policy paper released by the authorities details the guidelines. The paper starts with defining crypto-assets, noting that the nature of the cryptocurrency industry necessitates a continually developing tax perspective. Further, it defines and differentiates between exchange, utility, and security tokens, however, the guidelines specified are only applicable to exchange tokens.
The tax to be implied does not depend on the definition of the token but on its nature and use. Such as crypto-assets received as a form of payment will be liable for income tax, while if held as a personal investment, it is subjected to capital gains tax, but only on disposal.
Tax on Cryptocurrency
Income Tax and National Insurance contributions are liable on crypto-assets received in the following circumstances:
- Non-cash payment for employment or services rendered
- Mining fees or awards – where the mining activity is not at the degree where it would amount to a taxable trade.
- Financial trading in cryptocurrency – where the level of organization and frequency amounts to financial trade.
As crypto-assets gained through these activities count towards total earned income, the level of tax payable depends on tax bracket.
Capital Gain Tax
HMRC, in general, assumes that the buying and selling of crypto-assets by an individual will amount to investment activity. Similar to any other asset, such activities are subjected to tax on any gains realized at the point of disposal. For crypto-assets this may include the following:
- Selling for money
- Exchanging for other types of crypto-asset
- Using as payment for goods or services
- Giving away to another person – who is not a spouse or partner
Charity donations are not usually subject to capital gains tax. As for pooled assets, acquired over time and at different prices, different rules apply, subject to their initial purchase cost. Rates of capital gains tax are 20% for higher or additional rate taxpayers, and 10% for basic rate taxpayers. If your gains plus your income fall within your personal allowance then zero tax is due.
The well-written paper set an example for sort of ideal taxation policies for crypto assets. Notably, by treating crypto-assets as regular income and/or investments, will make taxation on them easier from both the government’s and investors’ point of view.
The Bank of England posted a Twitter poll this week, which asked respondents their preferred way to receive Christmas money. Interestingly, while the poll is still open, the option “digital currency” has been receiving the most number of votes.
If you receive money as a gift at Christmas, what’s your favourite way to get it?
— Bank of England (@bankofengland) December 17, 2018