What has changed since the budget?
Crypto assets are to become a separate category in UK tax returns, following Jeremy Hunt’s Spring Budget announcements.
The UK is currently developing its own framework for the regulation and taxation of crypto and digital assets.
The new category line will appear on the capital gains pages of tax return forms from 2024, according to the Treasury’s budget announcement in the spring.
“The government is introducing changes to the tax return forms that require amounts relating to cryptocurrency assets to be separately identified,” the Treasury said. “The changes will be implemented on the tax forms for the tax year 2024-25”.
Do you have to pay tax on crypto in the UK?
Cryptocurrencies are taxable in the UK, and HMRC stipulates that crypto-assets are subject to both capital gains tax (CGT) and income tax, depending on how they are traded.
Any person resident in the UK who sells, trades, uses or gives cryptocurrency in the UK has created a taxable event.
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If a person has made a capital gain by selling or trading a digital asset, they must pay tax on that amount.
This is charged at a rate of either 10% or 18% for basic rate taxpayers, and 20% or 28% for higher or additional rate taxpayers, depending on the size of the gain.
There is an annual exemption amount for CGT, which will reduce from £12,300 to £6,000 from tax year 2023. It is to be reduced to £3,000 in the following years.
The reduction in the annual exemption amount could result in thousands more taxpayers becoming liable for CGT.
Taxable cryptocurrency transactions
Disposal of crypto assets includes:
1. Sell crypto for British pounds or another fiat currency.
2. Trading crypto for another cryptocurrency, including parking your losses or gains in stablecoins.
3. Using crypto for goods and services.
4. Give crypto to another person, unless it is to your spouse or civil partner.
Using crypto is the act of making a transaction using crypto assets from one digital wallet to another. Digital wallets are similar to an online bank account, and can be set up on crypto exchanges such as Coinbase (COIN) and Binance.
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Crypto-assets can also be traded through over-the-counter brokers, who facilitate direct trading between private individuals.
This service is particularly vulnerable to abuse by criminals who take advantage of the reduced Anti-Money Laundering/Know Your Customer (AML/KYC) controls.
Cryptocurrencies can also be traded using decentralized exchanges (Defi), which facilitate the exchange of digital assets using “smart contracts”, such as the Ethereum-based uniswap.
There are no AML/KYC requirements for using decentralized exchanges, which also makes them vulnerable to abuse by criminals.
Tax Free Cryptocurrency Events
You don’t always have to pay taxes when dealing with cryptocurrency, including:
1. Buy crypto with British pounds (GBPUSD=X).
2. Keeping cryptocurrency in a digital wallet and not moving it, or “hodling”.
3. Transfer of cryptocurrencies between your own digital wallets.
4. Donate cryptocurrency to a charity.
5. Give cryptocurrency to your spouse.
Gary Ashford, deputy chairman of the Chartered Institute of Taxation, said the move would “help raise awareness of people’s obligations in this area, but much more needs to be done to tackle widespread ignorance of tax payment and reporting requirements for crypto”.
“Crypto-assets are subject to capital gains tax (CGT) as much as any other investment asset, but there are concerns about how well-known compliance obligations are, particularly among those who are not professionally represented,” he said.
“Many low-income taxpayers have invested in these assets, but research suggests that barely a third of them are professionally represented or have a good understanding of CGT, almost half have not seen any information/guidance on the subject, with 84% of crypto asset owners. have not sought tax advice.”
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The UK government also said it plans to introduce new criminal offenses for tax evaders and will consult on the issue soon.
“The government will also consult on speeding up the disqualification of directors of companies involved in promoting tax evasion, including those who exercise control or influence over a company,” according to the state budget.
Investing in crypto assets is currently assessed as high risk, according to the Financial Services Compensation Scheme (FSCS).
See: The Reasons UK Banks Are Blocking Crypto Exchanges | Crypto Mile
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