Are you one of the many millions of people who saw the price of bitcoin start rocketing in 2017? Are you one of the hundreds of thousands who bought in? Are you one of the thousands of buyers who is resident, for tax purposes, in the UK?
If your answer is yes to the last question, you need to take a minute and read on.
Cryptocurrency is still in its vey beginning as far as regulators are concerned, with very few rules around what you can do with bitcoin and its peers and what can be done to you with it.
Just like with any type of trading, you are advised to use registered and regulated platforms to trade and invest to ensure the best protection from scams.
But if those who make the legal application around burgeoning financial trends are a bit behind the curve, those seeking to tax it are not.
You might not be aware, but if the size of your pot of bitcoin – or other crypto – has risen considerably since you bought it, you need to be thinking about your potential liabilities to HMRC.
HMRC published last December a list of ways your crypto can make you liable for a range of taxes. The main one for those who bought the rising bitcoin in 2017 and forgot about it is the potential for Capital Gains Tax to be paid when you do get around to selling it (or already have).
CGT is a tax on the profit realized on the sale of a non-inventory asset. For example: you buy a house, live in it for 20 years and sell it on for double what you paid. Unless you knocked the place down and rebuilt it (at considerable expense), HMRC would likely demand you paid it some CGT. Same happens with the sale of stocks, bonds, precious metals…
It’s the same with cryptos. Just because you got in at the right time, doesn’t mean the taxman lets you off. Like with other investments, cryptocurrencies held specifically to make money are classed by HMRC as “chargeable assets” and incur appropriate taxes. It is also up to you, the investor, to inform Her Majesty’s Revenue and Customs that you have made the gains and offer up the cash. If you don’t there might be potential fees to pay.
Two important points: CGT is only applicable when you *sell* the asset, not when you just keep holding on and you also get an allowance of £12,000 a year that is CGT-free, but this has to be shared with any other type of asset you sell or dispose of.
But if you got in very early and intend to make a tidy profit from your crypto-savviness, take a look in your digital wallet and have a think about how much you could end up owing.