There are people who invest in, and trade in, crypto-currencies such as Bitcoin and Litecoin. It may come as a surprise to those individuals, but buying and selling amounts of any crypto-asset is treated just like dealing in shares or bonds.
The gains and losses made on those transactions are taxable as capital gains or capital losses, and they need to be reported as such on your SA return if the total amount of proceeds is more than four times your annual exemption. For 2017/18 the CGT annual exemption is £11,300, so where the total value of all capital transactions in the year is £45,200 or more, those gains/losses must be recorded.
It is quite possible for bitcoin trading to have exceeded £45,000 in 2017/18 as the peak value of one bitcoin on 11 December 2017 was $17,550 (£13,117). A gain or loss is made whenever a bitcoin (or similar token) is; exchanged for another one or for another asset, given away, or surrendered for payment in legal currency such as US dollars.
There are several problems to overcome when calculating gains made on crypto-assets for a UK taxpayer:
- All transactions must be calculated and reported in sterling, which means both the buy and sell value has to be stated in sterling.
- Each type of crypto-asset needs to be treated as a class of share and be “pooled”, paying attention to the 30-day rule for matching sales and purchases.
- The number of transactions in the year may be large, and there is unlikely to be a broker’s report which calculates the gains for you.
Where the volume of transactions is very large, you may consider if you have been trading in the assets, and if your profits or losses should be subject to income tax. This approach will be resisted by HMRC (see the R Gill case in our newsletter 14 June 2018).
Written by the Tax Advice Network