When do I start paying tax on cryptocurrency?

HMRC considers a number of events in cryptocurrency as a disposal, in other words, a taxable event for capital gains tax (CGT) purposes. These include selling them for money, exchanging them for other crypto currency, using them to pay for goods and services and giving them away (other than to your spouse).

Therefore, when you exchanged your three bitcoins for other cryptocurrency, that would have been a disposal for CGT purposes and you will need to declare the gain of £135,000, and pay capital gains tax after you have deducted your annual exempt amount of £12,300 and any losses brought forward. Some gains may be within your basic rate band and be taxable at 10%, but a substantial proportion will be taxable at 20%. For a disposal in 2021/22, the deadline for submitting that tax return is 31st January 2023 so you will have time to complete and submit a tax return for that year.

Any free tokens you have received as a result of airdrops or staking will also be subject to income tax as miscellaneous income. You may be able to set off the trading allowance of £1,000 against this income if you haven’t already set it off against other income, but above that, it will be subject to income tax at your marginal rate.

Looking back, it would appear your decision to transfer Bitcoin back in November may have resulted in a significant capital gain but it should be noted that many crypto currencies have experienced falls in value since then.

Where an individual does find themselves in the unfortunate position of having experienced losses on their portfolio, TaxAssist Accountants are able to help advise what options they have in relation to any capital losses. We can also help determine if making a negligible value claim may be tax efficient if you have not yet sold crypto currency which is standing at a significant unrealised loss.

You can read more about Crypto Taxes in our easy to understand guide here.

Date published 4 May 2022 | Last updated 27 May 2022

This article is intended to inform rather than advise and is based on legislation and practice at the time. Taxpayer’s circumstances do vary and if you feel that the information provided is beneficial it is important that you contact us before implementation. If you take, or do not take action as a result of reading this article, before receiving our written endorsement, we will accept no responsibility for any financial loss incurred.