Earlier this year, HMRC issued a statement, warning individuals that they will soon be issuing ‘nudge letters’ which are specifically targeting cryptocurrency investors.
A copy of the letter which has now seen by Prysm Financial, states “We have information that indicates you hold or have held, investments in crypto assets (also known as cryptocurrency)” and prompts the recipient to review their Capital Gains Tax (CGT) position.
It was reported back in August 2019 that crypto exchanges that do business in the UK, including Coinbase, eToro and CEX.IO had received letters from HMRC requesting customer data and transaction histories. HMRC regularly gathers data from a range of information sources using powers provided by Parliament.
TAX ON CRYPTOCURRENCY
Despite HMRC previously suggesting that some cryptocurrency transactions may be exempt from tax as gambling profits, in December 2018, HMRC clarified that for most investors, cryptocurrency will be subject to CGT at either 10% or 20% depending on whether the investor is a basic or higher rate taxpayer.
This means individuals must calculate the gain or loss whenever they “dispose” of a cryptocurrency at the sterling equivalent value, on the day of disposal.
HMRC further clarified that a “disposal” arises when: –
- Selling cryptocurrency for money (e.g., GBP, USD, EUR)
- Exchanging cryptocurrency for a different cryptocurrency (e.g., exchanging Bitcoin to Ripple)
- Using cryptocurrency to pay for goods or services
- Giving away cryptocurrency to another person
Most cryptocurrency investors would benefit from an annual CGT tax free allowance of up to £12,300, however this allowance is accumulated with any other disposals such as stocks, shares or property.
In certain circumstances, for example a day-trader involved in high-frequency buying and selling of cryptocurrency, mining or airdrops, may be considered as trading and will therefore subjected to Income Tax.
