The tax life of a UK crypto user
Friday 05 August 2016
I recently spoke to a man about tax and crypto. Here’s some of what I learned.
‘Ian,’ I said to the nice man who had come to talk to me about tax. ‘Ian, if I wanted to evade tax illegally, I could do it really easily. My problem is that I want to pay the right amount of tax and no more.’ I’d asked Ian to come over when I realised how complicated my tax affairs were getting, largely because of the issues raised by dealing in several different currencies, some of them virtual, and some of them which can appreciate (and sometimes depreciate) rapidly in value.
I’ve held various cryptocurrencies for varying lengths of time, having paid different amounts for them. With the recent reversal in the bitcoin and some alts markets, it seems like it might be a good time to cash out a bit. And that, in an uncertain world, means the certainty of tax. I don’t mind paying tax; my family uses the NHS enough, after all, and someone has to pay for it. But neither is the UK government a charity.
I'm keen to pay Mr Osborne Hammond no more than is legally required. Assuming he's still in Number 11 by then, of course...
The government has, relatively recently, clarified the tax position for cryptocurrency payments. They have, fairly sensibly, taken a money-is-money approach, treating BTC and other forms of digital money like any other currency. That means you’re taxed at the value of the currency at the time of payment. If you generally quote prices in USD, like I do, then you’ve got an exchange rate to take into account. If I’m using Circle to cash out instantly, it’s done for me as it’s immediately sold for GBP and that’s the rate I pay; it’s only if I’m holding crypto for any length of time that the exchange rate becomes important. Incidentally, you should use Circle if you’re not, because it’s great. Not least because it makes my tax life easier.
When a crypto appreciates in value it gets more complicated. You’re taxed at the point of payment, of course; if you buy your crypto then presumably you’ve already been taxed on the money with which you’re buying it. You’re also taxed when you sell, on any increase in value (capital gains tax).
The rate at which you pay CGT depends on whether you’re a regular or higher-rate taxpayer. There is an £11,000 allowance you get tax free, every year (separate to your income tax allowance). The most useful thing Ian told me was that, if you’re married, you can transfer up to £11,000 of assets to your spouse, thus using their CGT allowance - and getting up to £22,000 of capital gains tax free. ‘It’s one of the only tax advantages of being married,’ apparently.
Moreover, you can time any selling with the current and following tax years, so you can get £22,000 on 5 April and another £22,000 on 6 April. Crypto markets don’t respect things like the need for careful timing with tax planning, but still. It’s a neat trick. Now, if I had £44k of gains I needed to cash out in a hurry, that really would be a nice problem to have.
Disclaimer: this article does not constitute formal tax advice or financial planning, and anyone who takes it as such without professional consultation is an idiot.
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