British Bitcoin Profit: Paying Your Taxes
Taxes are an important part of realising profit while trading cryptocurrencies and considering your British Bitcoin profit. It is crucial to be on the right side of the law and pay what you owe to the government.
The UK does not have a specific tax for bitcoin or cryptocurrencies; instead, it falls into the categories of Capital Gains Tax and Income Tax. We will explain the main differences between the two to help you understand into which of the two you fall.
Capital Gains Tax is implemented when doing the following with cryptocurrencies; selling crypto, trading crypto, spending crypto, and/or gifting crypto. You don't pay tax on all proceeds, or if one of these actions results in a loss, you only have to pay on crypto gains or, in other words, when you've made a profit.
You don't pay tax if you gift crypto to a spouse or civil partner.
It would be best to consider what tax bracket you fall into when calculating your gains. Unlike other countries, the UK taxes all capital gains and is taxed under the same rates and based on how much you earn annually.
The following are from the 2020-2021 tax year:
• if the amount earned is more than £50,279, you are charged 20%
• if the amount earned is below £50,270, you pay 10%
It's worth noting that if your crypto gains are less than £12,300 for the year, you do not need to pay any tax. To calculate Capital Gains Tax, you need to work out your cost basis. To do this, you need to find out the Great British pound (GBP) price at which you bought plus any transaction fees. Once you have this figure, it is pretty straightforward. Capital gain is the difference between the price at which you purchased and the price at which you disposed of the asset. For example, if you buy Bitcoin worth £3,000 at the time of purchase and decide to sell it a month later for £3,300, your capital gain would be £300. It is important to keep track of your losses too, as recording them with HMRC can offset against your gains, reducing the total amount you owe in taxes.
The following actions are excluded from paying tax in the UK:
• buying crypto with GBP
• holding crypto
• transferring between wallets
• donating crypto to charity
Lost crypto is also not considered to be disposed of. For example, if you lose your private key and prove that you cannot regain access, you can submit a negligible value claim. If your application is successful, you may be able to claim that as a capital loss, reducing your taxes.
So, we've discussed Capital Gains Tax, but what is Income Tax? Crypto is taxed as income when a person gets paid in crypto, acquires staking rewards, mines tokens, or receives airdrops. HMRC has yet to decide what decentralized finance (DeFi) protocols are considered income. Examples of unclear but most likely income-taxed protocols include; referral rewards, learn to earn, watch to earn, play to earn, and shop to earn.
Lastly, let's look at the Income Tax brackets for crypto:
• up to £12,570 = 0% tax
• £12,571 - £50,270 = 20%
• £50,271 - £150,00 = 40%
• any amount over £150,000 = 45%
Hopefully, this maximizes your British bitcoin profit!
Author: Fin MacGregor
I first found crypto through a YouTube video back in 2018, since then I have delved head first into the space, researching different DeFi Protocols and coins. I love crypto because it opens up the doors of financial freedom to anyone who spends the time to learn.