Capital Gains Tax Implications on Cryptocurrency

Time to read: 5 minutes

Cryptocurrency has grown in popularity as both a form of payment and an investment. However, many crypto investors are unaware of the capital gains tax (CGT) implications when trading, selling, or exchanging crypto assets. In this blog, we break down the key points you need to know about capital gains tax on cryptocurrency in the UK.

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1. What is Capital Gains Tax (CGT) on Cryptocurrency?

HMRC treats cryptocurrency as a chargeable asset, similar to shares or property. This means any profit (or “gain”) you make when you sell, exchange, or dispose of cryptocurrency may be subject to CGT.

Triggering Events for CGT:

• Selling cryptocurrency for fiat currency (e.g., GBP).
• Exchanging one cryptocurrency for another (e.g., Bitcoin to Ethereum).
• Using cryptocurrency to buy goods or services.
• Gifting cryptocurrency (except to a spouse/civil partner).

If you make a gain above the annual CGT allowance, you will need to pay tax on the excess.

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2. Capital Gains Tax Rates and Allowances

For the 2024/25 tax year, the annual CGT allowance is £3,000. This means you can earn up to £3,000 in capital gains before any tax is due.

CGT Rates:

• 10% for basic rate taxpayers (on gains within the basic rate band).
• 20% for higher or additional rate taxpayers.

Example:

• Gain on cryptocurrency: £15,000
• Annual Exemption: £3,000
• Taxable Gain: £12,000
• Tax Rate: 20% (higher-rate taxpayer)
• CGT Due: £2,400

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3. Calculating Capital Gains on Crypto

To calculate your capital gain, you need to know the cost basis (the amount you paid for the crypto) and the proceeds (value when sold or exchanged).

Formula: Capital Gain = Proceeds – Cost Basis – Allowable Expenses

Allowable expenses include:

• Transaction fees when buying or selling crypto.
• Costs of professional advice related to crypto transactions.

Example:

• Purchase Price: £10,000
• Sale Price: £18,000
• Transaction Fees: £100
• Gain: £7,900

If you have multiple crypto transactions, HMRC requires you to use the share pooling method to calculate your average cost basis.

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4. Losses on Cryptocurrency

If you sell or dispose of cryptocurrency at a loss, you can offset this loss against other capital gains in the same tax year or carry it forward to reduce future CGT liabilities.

Example:

• Gain on Stocks: £8,000
• Loss on Cryptocurrency: £4,000
• Net Gain: £4,000 (within annual exemption, so no tax due).

To claim losses, you must report them to HMRC, even if you have no gains in the same year.

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5. Record-Keeping Requirements

HMRC requires crypto investors to maintain accurate records of all transactions, including:

• Dates of transactions.
• Value in GBP at the time of transaction.
• Amount of cryptocurrency bought/sold.
• Transaction fees.
• Records of any gifts or transfers.

Keeping detailed records ensures you can calculate your tax liability accurately and avoid penalties.

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6. Special Scenarios: Gifts and Airdrops

• Gifting Crypto: Transfers to a spouse or civil partner are exempt from CGT. However, gifts to anyone else are treated as a disposal at market value.
• Airdrops: If you receive free crypto as part of an airdrop, it may be subject to income tax rather than CGT, depending on the circumstances.

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Final Thoughts

Understanding the capital gains tax implications of cryptocurrency is essential for any investor. Whether you’re actively trading or holding crypto for the long term, careful record-keeping and professional tax advice can help you stay compliant and minimise your tax liability.

If you need support calculating your crypto capital gains or filing your tax return, our team at Taxes Done Right Ltd is here to help. Contact us today for expert advice.

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Need help managing your crypto taxes? Get in touch with our expert team for a clear and compliant tax strategy.