UK cryptoasset holders nudged on CGT

This month HMRC is writing letters to holders of cryptoassets (sometimes known as cryptocurrency), encouraging them to evaluate their capital gains tax position and make a declaration to HMRC for the 2020/21 tax year and relevant prior years. The HMRC letter states they have information indicating the recipient holds/held investments in cryptoassets. Read a copy of the letter here.

Past experience indicates that HMRC are giving crypto taxpayers an opportunity to get their taxes in order before they start a formal campaign of investigations in this area.

HMRC has been gathering information from UK based cryptoasset exchanges, and has decided that now is the right time to issue these letters, with only a few months until the 31 January 2022 deadline for submission of 2020/21 self-assessment tax returns.

We understand that HMRC is not sending these nudge letters to non-UK domiciled individuals; but have stressed that this is not an indication that the HMRC view on the situs tests for cryptoassets has changed. HMRC’s position is that a UK resident individual will always need to pay UK tax on the disposal of their cryptoassets, regardless of their place of domicile.

We are seeing a lot of individuals involved in crypto activities that need to file a tax return for the first time. Most buying/selling/exchanging of crypto tokens is treated as investment activity and is taxed under the capital gains tax regime.

There is a disposal for capital gains tax purposes when:

• crypto is sold for fiat (ie GBP/USD);
• crypto tokens are exchanged for another token (ie Bitcoin for Ethereum);
• crypto is used to pay for goods or services (ie trade fees); or
• crypto is given away.

If your capital gains (crypto and non-crypto) exceed £12,300 for the tax year ended 5 April 2021, you need to file a tax return and pay the tax by 31 January 2022.

In exceptional circumstances, the facts may dictate that the cryptoasset activity is treated as a business activity and will fall within the income tax regime. As this is a complex area it is recommended that professional advice is sought regarding the tax treatment of your crypto activity.

An increasing number of crypto investors are also generating income from staking, mining etc; which is taxable as Miscellaneous Income. Where total investment income from all sources (ie crypto, dividends, interest or trusts) exceeds £10,000 in the 2020/21 tax year, you are required to file a tax return. If the investment income is between £1,000 and £10,000, you need to call HMRC to notify them, but may not need to file a tax return (if this investment income is the only reason a tax return is needed).

Find out more about our crypto offering here, along with all the relevant contact information for our specialist team.