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HMRC clarifies tax position on cryptocurrencies

Paloma Kubiak
Written By:
Paloma Kubiak

HM Revenue & Customs has clarified the tax position and allowable losses when it comes to cryptocurrencies such as Bitcoin.

This has largely remained a grey area for investors who were unsure whether they would be hit with a big tax bill after profiting from gains in cryptocurrency.

There are a number of virtual currencies, but the performance of Bitcoin has attracted the most attention from investors, peaking at £15,000 towards the end of 2017 but now sits above £6,000.

With many investors jumping on the bandwagon, those hoping to buy low and sell at a high need to be aware of the tax implications.

An HMRC spokesperson, “The treatment of income received from, and charges made in connection with, activities involving cryptocurrencies will be subject to Corporation Tax, Income Tax or Capital Gains Tax depending on the activities and the parties involved.

“Whether any profit or gain is chargeable or any loss is allowable will be looked at on a case-by-case basis taking into account the specific facts. Each case will be considered on the basis of its own individual facts and circumstances.

“Where an asset (including Bitcoin) is held as an investment – as opposed to being working capital in a trading activity – the presumption is that any profit or gain on its disposal will be charged to Capital Gains Tax.”

Where someone is trading in Bitcoin, the amount is liable to income tax while for non-traders, the amount is liable to CGT, according to HMRC.

You need to calculate whether a disposal has given rise to a loss or a gain. At the end of the tax year, you must add together all of the chargeable gains and then subtract any in-year allowable losses. If the overall result is a gain then Capital Gains Tax will be due.

If the overall result is an allowable loss then this can be carried forward to future tax years to set against chargeable gains.