Out of all the things we know about cryptocurrency, its tax-free working system gives a sigh of relief every time you look for a reliable first preference in money-making. It was true until the detailed paper from HMRC about the cryptocurrency tax filing guidelines and deadlines.
As cryptocurrency is a form of digital currency, it forms a decentralised system for storing, buying, selling, and other trading duties of crypto assets. But, HMRC opposed this idea by calling it a capital asset that must be taxed when traded. This was a relatively strange thing to know, especially in the UK that has the highest number of cryptocurrency investors with countless crypto assets, supplies, and storage.
Also, it aroused many questions from investors who controlled crypto in the UK, wondering if cryptocurrency is to be taxed then how much, where will the tax end up, what will be tax used for, and much more. To answer all such questions, HMRC gave a comprehensive view of the complete tax treatment of nearly every crypto asset to help individuals and businesses implement the rules as mentioned.
The UK’s national currency, cryptocurrency – Pound, highly differs in both the tax rules and percentages which need to be considered every time a crypto-asset transaction occurs.
Here are a few objectives of the whole document describing the tax process and clearing all the doubts that accompanied the question if investors really need to pay crypto taxes in the UK.
- With the sky-rocketing cryptocurrency price, many individuals find it hard to afford heavy currency exchange rates while paying huge taxes accompanied by it. As a result, many of them converted their physical money into cryptocurrency (digital money). On this rise of population in the crypto family, cryptocurrency’s value seemed to step down because of being a very easily accessible source to make assets. Therefore, HMRC made it mandatory for the crypto users to pay taxes whenever they received, stored, or traded their crypto.
- The paper by HMRC also gave a clear and concise three methods tax transaction of cryptocurrency that was exchange tokens (other digital currency like coins to use for buying and selling of goods and services), utility tokens (payments by businesses in the form of crypto), security taxes ( token used for evaluating profit and loss in any business venture). Since cryptocurrency is a huge digital currency, the tax methods were also suggested in the form of three types of coins.
- Cryptocurrency is a huge money-making asset. It can bring major life-changing changes in the financial states of investors who invested in it. Deciding when the right time to pay crypto taxes in the UK is was hard, but it reached the following conclusion. The report by HMRC suggested that these taxes will only take place in three scenarios that are:
- If you buy crypto at a certain price and it rises to 4x greater than the price you bought it, you’re bound to pay the tax.
- In the case of any cryptocurrency mining, these taxes are also restricted to the amount of cryptocurrency mined by the employers. Both the overall salary and rewards on mining included a certain amount of tax to be paid.
- Profits gained by both individuals and huge business on selling down on any profit. These taxes were implied on the capital gains excluded from the profit of the crypto.
- In the case of any cryptocurrency exchange, the taxes rules highly vary depending upon the scenario of the crypto asset use and your capital losses and gains. The very first benefit was not to pay a single penny if you lose any crypto. Secondly, cryptocurrency, when transferred in the form of gifts, rewards, coupons to the spouse or any civil law partner, was also untaxed. Lastly, a certain amount of cryptocurrency is untaxed if donated to any charity or non-profitable organisation.
- It would have been pointless if the cryptocurrency was to be taxed instantly after a beginner trader put its digital money at stake, but fortunately, that’s not the case. A cryptocurrency is only taxed in a small amount called short-term capital gain if a person has stored it for about a year without trading it for once. Or, long-term capital gain occurs when crypto is held for a year or more and receives many profits out of it.
This article was just a brief guide about some major postulates of the HMRC report that every investor should know. To know the tax line for each crypto asset like the well-famous bitcoin, head on to bitcoinmastery.io with complete tax treatments about bitcoin in every situation.
Although the tax rules are not too harsh to be implied, the idea of cryptocurrency to be taxed in the UK has made a lot of investors consider second thought while investing in this huge money-making source.
The above information does not constitute any form of advice or recommendation by London Loves Business and is not intended to be relied upon by users in making (or refraining from making) any investment decisions. Appropriate independent advice should be obtained before making any such decision.