HMRC will have crypto assets in its 3 March Budget spotlight as Bitcoin breaks the US$50,000 mark and with capital gains tax expected to increase in line with income tax rates. HMRC already requires Coinbase, the trading platform, to share details of investments and trades over £5,000 from individuals with investors already receiving notifications from HMRC.
HMRC sees cryptocurrencies not as a currency but as investment assets and as such are subject to capital gain tax. The huge increases in Bitcoin in recent weeks will see HMRC take a keen interest where investors choose to cash-in on that growth.
Crypto assets are assumed by many investors to be easily hidden, but are increasingly traded via online platforms and marketplaces, such as Coinbase. Coinbase has, since October 2020, shared details of all trades over £5,000 by UK nationals with HMRC, and HMRC is already writing investors seeking tax on traded crypto assets.
And with capital gains tax rates expected to increase in the 3 March Budget, investors should not ignore any letters from HMRC and should first seek specialist advice. Paying capital gains tax now at the 20% rate will be preferable to a potential rate of 40%.
Taxation of crypto assets is complex, with many investors claiming to be traders. Traders can avoid capital gains tax paying income tax on tax on the profits of those trades.
However, the bar to being considered a professional trader is high. HMRC will expect to see regular trades with that activity providing a primary income. And with the soaring Bitcoin rates, HMRC will be taking a very keen interest.
The taxation of crypto assets can be a complex area. Everyone’s situation is different and getting advice that is tailored to your unique situation can ensure that your affairs are as tax efficient as possible.
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