CGT- Requirements to Declare Capital gains on Cryptocurrency

The tax that you pay on any profit you make when you sell or dispose of an asset is known as the Capital Gains Tax or CGT. The amount of money you make is not taxed, therefore you are required to declare these so that the gains can be taxed under the self-assessment system.

Capital Gains Tax on Crypto assets:

Cryptocurrency, in the United Kingdom, is not treated as money. However, buying or selling the cryptocurrency is considered an investment by the HMRC, so it is subjected to CGT.  It means that if you have invested in cryptocurrency in the United Kingdom, the tax will be charged on the gained profit of your crypto assets. The capital gain tax that is applied to the profits that you make by selling shares is similar to the CGT applied on the profits that you make from crypto assets.
Your profits or gains are realized only when you:
  • Dispose of your crypto currency.
  • Trade it for another crypto currency.
  • Convert your crypto into paper money, i.e., the pound sterling.
If the profit that you make on your crypto is unrealized or a paper profit, then the CGT will not apply to it.
The gains, losses, or disposal of shares are synonymous with those of crypto assets, so the rules are also the same. The difference between the disposal proceeds value and the cost of its acquisition is the capital gain amount that is taxable.  For example, you use bitcoin to buy a service or a thing worth £100,000, but bitcoin costs you £90,000. The difference amount, i.e., £10,000, will be taxable, and CGT will be charged on it.

What are Proceeds?

The sterling cash that you get or the value of the asset in the pound that you get in exchange for the cryptocurrency is known as the proceeds.

What does disposing include?

“Disposing of” your crypto assets or currency makes it taxable. The disposing of a crypto asset is a large term, and it includes the following thing.
  • You are selling a crypto asset or currency.
  • You are buying things or goods by using the tokens.
  • You are transferring or gifting it to someone else.
  • You are exchanging it for another crypto currency.

What is the rate of CGT?

From the year 2020 to 2021 and 2021 to 2022 following CGT tax rates are followed.
  • Profit gained by selling a property:
  • If you are a basic taxpayer, then the CGT tax you’ll pay is 18%.
  • If you pay a higher tax rate, then the CGT tax you’ll pay is 28%.
Profit gained by selling other assets:
  • If you are a basic taxpayer, then the CGT tax you’ll pay is 10%.
  • If you pay a higher tax rate, the CGT tax you’ll pay is 20%.
A specific ordering of acquiring the cryptocurrency/ assets is applied to determine the base cost:
  • Acquiring them on the same day.
  • Acquiring them in the next thirty days.
  • The average cost of any other currency from the pool (crypto assets that are unmatched).