How are Capital Gains Handled with Crypto?

Crypto burst into the mainstream years ago as an innovative alternative to traditional finance. Today, it presents a popular investment opportunity for those looking to grow their wealth. But even still, there's confusion about tax obligations.

In the UK, His Majesty's Revenue and Customs (HMRC) requires you to pay income and capital gains tax. Despite crypto's decentralized nature, the HMRC can gather information about your crypto activity.

How Does the HMRC View Crypto?

Crypto rules and regulations vary throughout the world. In the United Kingdom, it's not treated like traditional currency. Instead, the HMRC separates cryptocurrencies into four categories.

The first is exchange tokens. These assets are what you can use to make payments. Most popular coins like BitCoin fall into this category.

The second is utility tokens. When you use a utility token, you have the right to access a good or service.

Next is security tokens. With security tokens, you have the right to profit and loss in a business venture.

Finally, there are stablecoins. Stablecoins are attached to other assets like fiat currency or precious metals.

What are the Crypto Capital Gains UK Rules?

If you hold crypto as a personal investment, you're subject to capital gains tax. This tax applies whenever you dispose of a virtual asset. Typically, that means you sell or exchange it. The capital gain is the profit you gain. So if you buy a coin for a bargain and sell it for a much higher price, the difference between those values is a capital gain. Conversely, selling for less than what you bought it for is a capital loss.

Crypto capital gains UK law requires you to report gains and losses. Tax responsibilities will vary based on how much you gain and how long you hold your assets.

Like all other capital gains, you have an allowance. The UK provides a non-taxed limit of up to £12,300 for 2022. Anything above that figure is subject to capital gains taxes. The UK also has separate rules for crypto earned as income or through a business.

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