Beware unexpected tax liabilities on cryptocurrency investments

It is reputed that 1 in 10 people in the UK have now invested in cryptocurrency, to a greater or lesser degree.  What many may not appreciate however, as they navigate their way around a dizzying array of coins and investment platforms, is that each and every transaction is relevant to their Capital Gains Tax (CGT) position.

Moreover, it is hugely important, to note that CGT does not only become relevant when you “cash out”.  Cryptocurrency is not one all encompassing asset, each individual crypto is a separate asset in its own right.  For example a disposal of, say, Bitcoin and a purchase of Ethereum, is a disposal of one asset and a completely new investment in another.  The fact that your investment may remain within your digital wallet, and you don’t draw any cash, is irrelevant; if you’ve been trading different cryptos and realise gains, even if only in a digital sense, then these need to be calculated and reported, and any tax due paid by 31^st January following the tax year in question.

You will also pay income tax on interest received on your coin holdings, and on any “airdrops” received as payment for services.

Of course, calculating the CGT position may be extremely complex, involving literally thousands of transactions, to say nothing of the quite complex CGT ‘matching rules’ which decide which investment cost is attributed to each sale, and the requirement for everything to be effectively converted into the relevant value in £ Sterling, the only currency HMRC deal in!  As most accountants work on a ‘time spent’ basis, this will inevitably impact upon the price charged to taxpayers who engage professional help for their tax returns.

How can we help?

Fortunately, Brearley & Co have partnered with Recap, an online resource which will compute the CGT position automatically.  Recap can link automatically to your accounts with all major trading platforms, and further offers the facility to input transactions manually if required.  It will also work for computing the gains on share portfolios and other assets, not just cryptos.

Under our partnership, Brearley & Co clients receive a discount on the normal subscription price.  Clients taking up the offer can be reassured that, as what will be the most complex and time consuming aspect of the tax return is already dealt with by Recap, we can avoid increasing our charges to account for extra time which would otherwise be spent.

If you wish to take up this offer please contact us.