What the UK’s new crypto tax rules mean for holders
The UK Treasury’s plans to update crypto tax rules should clear up confusion for taxpayers and give the government more information about crypto holders, experts have said.
As part of its spring budget announcement on Wednesday, the Treasury said it is changing the rules around crypto assets on the Self Assessment (SA) system, which UK taxpayers can use to file their own tax returns. The change requires any amounts related to crypto to be identified separately.
Crypto is already taxable in the UK. Typically this takes the form of capital gains tax (CGT) on all profits from the sale of tokens, while profits from crypto mining and stakes are treated as income. This will be reported along with the profit from selling other assets, such as property and shares, through the SA form, which is sent to the UK tax department, His Majesty’s Revenue and Customs (HMRC).
By singling out crypto in the way Self Assessment users report their taxes, the government said it hopes to collect an extra £10 million ($12.1 million) a year, once the rules are introduced for the 2024-2025 tax year.
Mike Hodges, partner at accountancy firm Saffery Champness, said the move could help remind taxpayers that “they need to assess the tax position of their crypto holdings – if they haven’t already – and help avoid unnecessary taxpayer confusion.”
Hodges also pointed out that the move coincides with the lowering of the threshold at which taxpayers must pay CGT to £3,000 from £12,300 in the 2024-25 tax year.
“This move may partly be in anticipation of more taxpayers being required to complete the capital gains pages in respect of their crypto gains – whereas previously their gains may have been covered by the more generous £12,300 exemption obtained until 2022-23,” he said .
Eyes on crypto holders
Dion Seymour, who previously worked on crypto-asset policy at HMRC and is now technical director of crypto and digital assets at tax advisory firm Andersen LLP, said the change would give HMRC greater insight into who is holding and selling crypto.
“The changes to the SA form for crypto asset gains to be declared separately will give HMRC greater transparency about who is declaring their gains,” he said.
While the move does not create any new obligations, Seymour agreed that the policy could help remind eligible taxpayers when they need to report crypto gains.
“HMRC market research found that the majority of crypto asset owners paid their tax through PAYE [Pay As You Earn—taxes taken from income payments to employees], meaning most crypto asset owners had limited experience with SA returns,” he said. “This is important as it will be more difficult to argue a fault for any penalties that may be applied.”
“No doubt HMRC is considering how to use the information from the OECD’s ‘Crypto Asset Reporting Framework,'” Seymour said, referring to G20-mandated standards for reporting crypto-taxes.
He added that HMRC is using its “limited resources” to identify the most risky cases. “The addition of the separate identification of crypto asset gains will make it easier for them to target customers – and this will make it harder to hide in the data,” he said.
