HMRC have started writing to UK domiciled taxpayers and their agents about Capital Gains Tax (CGT) where HMRC have third party information that indicates they hold or have held, investments in cryptoassets.
The letters explain what is a disposal of cryptoassets and the resulting CGT consequences, encouraging taxpayers to declare gains on Crypto transactions under Self Assessment and setting out how to make a disclosure under the Digital Disclosure Service for earlier years. Until 31 December 2021 gains can also be reported under the Real-Time Transactions service instead of filing a full Self Assessment return.
In the letters, HMRC set out examples of transactions subject to CGT and their potential tax treatment including:
- Selling cryptoassets for fiat currency (eg; USD, or GBP). Gains from these transactions are taxable, even if the money you make is not 'withdrawn' from the cryptoasset exchange.
- Exchanging one cryptoasset for another, for example, Bitcoin to Ether. You must pay CGT on these gains, even if you haven't converted your cryptoassets back to fiat currency.
- Using cryptoassets to buy goods or services.
The letters do not however make any mention of the types of crypto transactions that may instead be subject to Income Tax, such as mining or staking.
Taxpayers who receive a letter are advised to review their crypto transactions and if they are satisfied they have no tax to pay they do not need to act. Otherwise, they should consider what gains need to be declared and when, and take professional advice if necessary.
Useful guides on this topic
How are Bitcoin, cryptocurrencies or cryptoassets taxed in the UK?
How do you tax Bitcoin? Are cryptocurrency or cryptoasset gains or profits, taxable? Can you obtain tax relief if you make losses on Bitcoin? Gains on transactions in cryptoassets are potentially taxable in the same way as other investments.
CGT: Reporting, how to report CGT?
How do you report your capital gains? What return do you use?
Do I need to file a tax return?
Do I need to file a Self Assessment tax return? What if I am a director? Can HMRC make directors file tax returns? When should I file a Self Assessment return?
Making a tax disclosure (Digital Disclosure Service)
A practical guide to making a tax disclosure using HMRC's online system.
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