The UK is currently developing its own framework for regulating and taxing crypto and digital assets.
The new category line will appear on the capital gains pages of self-assessment tax return forms from 2024, according to the Treasury's Spring budget policy paper.
“The government is introducing changes to the self-assessment tax return forms that require amounts related to cryptocurrency assets to be identified separately," the Treasury said. “The changes will be implemented on the tax forms for the 2024-25 tax year".
Do you have to pay tax on crypto in the UK?
Cryptocurrencies are taxable in the UK and HMRC stipulates that crypto-assets are subject to both capital gains tax (CGT) and income tax, depending on how they are transacted.
Any person who lives in the UK and sells, trades, spends, or gifts cryptocurrency in the UK has created a taxable event.
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If an individual has made a capital gain by selling or trading a digital asset they must pay tax on that amount.
This is charged at the rate of either 10% or 18% for basic rate taxpayers, and 20% or 28% for higher or additional rate taxpayers, depending on the size of the gain made.
There is an annual exempt amount for CGT, that will reduce from £12,300 to £6,000 from the 2023 tax year. It is to be reduced to £3,000 in the coming years.
The reduction of the annual exempt amount could see thousands more taxpayers liable for CGT.
Taxable cryptocurrency events
Disposals of crypto-assets include:
1. Selling crypto for British pounds or another fiat currency.
2. Trading crypto for another cryptocurrency, including parking your losses or gains into stablecoins.
3. Spending crypto on goods and services.
4. Gifting crypto to another person, unless it's to your spouse or civil partner.
Spending crypto is the act of conducting a transaction using crypto-assets from one digital wallet to another. Digital wallets are similar to an online bank account, and can be set up on crypto-exchanges such as Coinbase (COIN) and Binance.
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Crypto-assets can also be traded through over-the-counter brokers, who facilitate direct trades between private individuals.
This service is particularly vulnerable to abuse by criminals who take advantage of the reduced Anti-Money Laundering/Know Your Customer (AML/KYC) checks.
Cryptocurrencies can also be traded using decentralised exchanges (Defi), which facilitate the exchange of digital assets using "smart contracts", such as the Ethereum-based uniswap.
There are no AML/KYC requirements to use decentralised exchanges, also making them vulnerable to abuse by criminals.
Tax free cryptocurrency events
You do not always need to pay tax when dealing with cryptocurrency, including:
1. Buying crypto with British pounds (GBPUSD=X).
2. Keeping cryptocurrency in a digital wallet and not moving it, or "hodling".
3. Transferring cryptocurrencies between your own digital wallets.
4. Donating cryptocurrency to a charity.
5. Gifting cryptocurrency to your spouse.
Gary Ashford, deputy president of the Chartered Institute of Taxation, said the move will "help raise awareness of people’s obligations in this area, however much more needs to be done to counter widespread ignorance of tax payment and reporting requirements for crypto".
“Crypto assets are as chargeable to capital gains tax (CGT) as any other investment asset, but concern exists as to how widely known compliance obligations are, particularly amongst those professionally unrepresented," he said.
“Many low-income taxpayers have invested in these assets but research suggests barely a third of them are professionally represented or have a good understanding of CGT, nearly half having not seen any information/guidance on the subject, with 84% of crypto asset owners having sought no tax advice."
The UK government also said it planned to introduce new criminal offences for those who evade taxes and will consult on the issue soon.
“The government will also consult on expediting the disqualification of directors of companies involved in promoting tax avoidance, including those who exercise control or influence over a company,” according to the Treasury budget.
Investing in crypto-assets is currently rated as high-risk, according to the Financial Services Compensation Scheme (FSCS).