Tax Day in the United Kingdom is quickly approaching. Residents have until January 31st, 2019 to submit their tax returns.
Cryptocurrency traders who report profits will most likely need to pay taxes on their gains. To help investors calculate the how much they might owe, Her Majesty’s Revenue and Customs (HMRC) has published a guide detailing how cryptocurrency assets are taxed.
The guide provides a brief overview on cryptocurrency assets, including the types of tokens, the types of transactions, which taxes may apply and how to calculate asset gains.
According to HMRC, most individuals hold crypto assets as personal investments. When a crypto asset appreciates in value and is then sold or traded, the trader is liable for paying Capital Gains Tax on the profits.
Most cryptocurrency investors can take advantage of the Capital Gains Tax (CGT) annual exemption, which last year allowed investors to claim exemptions on up to GBP 11,300 (USD 14,625) in gains before owing any tax.
The Capital Gains Tax on chargeable assets may be as high as 20%, depending on whether an investor pays the basic or higher rate income tax.
HMRC employs a self-assessment system for reporting and paying taxes not automatically deducted from wages, pensions or savings. Most crypto traders and investors will need to report their gains or losses via this system.
To do this, investors will need to record all their cryptocurrency asset-related transactions. HMRC recommends recording and keeping the following: the type of cryptocurrency asset, date of transaction, and transaction type. The number of units, the value of the transaction, the cumulative total of units, and any bank statements and wallet addresses.
The guide also reminds traders that if they choose to trade on exchanges that do not use pound sterling, they must calculate the value of any gain or loss in pound sterling on the Self-Assessment tax return.
The tax year ends on April 5th in the United Kingdom.