How are Crypto assets taxed?  

What is a Crypto asset? 

A crypto asset, like Bitcoin, is a digital asset distributed on a ledger across a computer network. Currently, it is not considered to be currency by most countries including the UK. 

NFT (Non-fungible tokens) also fall into this category. These tend to be digital artwork or drawings such as a copy of The Beatle’s handwritten notes for ‘Hey Jude’. 

Should I buy Crypto assets? 

All our clients have different financial positions and risk exposure. As we are not financial advisers, we recommend you speak to one before investing. 

Ok, but can I buy Crypto assets? 

Yes, but you will need a wallet to hold your asset. This works like your bank account and can be in your own name, or the name of your company. 

How should I buy my assets? 

Like everything else with your tax affairs, it depends. 

If for example, you are investing a small amount of your personal funds you may wish to do this personally as you expect the gain to be below your annual exemption allowance (currently £12,300) and could potentially be tax-free. 
 
Whereas you may choose to invest your company’s profits because you would pay the higher (33.25%) or additional (39.35%) rate of tax on your dividend income. 

For most of our clients, their situation will be more complex, and our tax team can provide advice for your individual circumstances. 

How will my Crypto asset be taxed? 

For individuals 

In general, for an individual whose profits are taxable in the UK, it will either be a capital gain subject to capital gains tax or profits from their trade subject to income tax and national insurance.  

Capital gains tax applies to investments in the same way as with stocks and shares. The gain is calculated as proceeds, less acquisition cost and any relevant fees. The total gain in the tax year will be reduced by the annual exemption allowance, with the remainder taxable at the rate of 10% for basic rate taxpayers and 20% where gains mean the individual’s income exceeds the basic rate band. 

Income taxes apply where the individual is conducting their transactions in the manner of a self-employment instead of as an investment. This means the applicable rates will be the individual’s marginal rate of taxation (20%, 40%, 45%), and class 4 national insurance (13.25% or 3.25%). 

Companies 

For a company, both trading profits and capital gains will be subject to the corporation tax rate on their taxable profits. The main rate is currently 19%, however, from April 2023 this is planned to increase to 25% with a small profits threshold of £50,000 on which the rate of 19% will continue to apply. 

What if my investment fails? 

If you sell your investment at a loss, you will be able to offset this in year against your capital gains. If you are unable to use the loss, you can carry this forward to use in the future. 
 
If you are unable to sell the asset, you may qualify for a negligible value claim. Effectively, this achieves the same effect as a sale however it is open to challenge by the Revenue and full consideration should be made before making a claim. 

What Should I do next? 

Unsure if you should invest? Speak to a financial adviser. If you don’t currently use one, we would be happy to recommend one of our independent professional contacts. 

Want to know the most tax-efficient way to invest? Or extract your profits? Book an appointment with our tax advisers.

Record keeping 

As with any other income source, you will need to keep records to be able to calculate your profits. At a minimum you will need the following information about each transaction: 

• The date  
• Transaction type (Disposal, acquisition, airdrop, etc.) 
• Type of cryptoasset  
• The value of the transaction in pound sterling (as at the date of the transaction) 
• Number of units involved 
• Cumulative total of the investment units held 
• Bank statements and wallet addresses, in case these are needed for an enquiry or review. 

There are software options specifically designed to track Crypto transactions if you are investing as an individual you may wish to consider using these. Options include Koinly, Accointing, and Cryptotrade. 

If you have purchased within your company, please speak to one of our experts for individual advice: https://farnellclarke.co.uk/contact-us/