Do I need to pay tax on my crypto
profits in the UK?
REX is proud to announce a partnership with Charlton Baker, Crypto Tax experts from the UK. While this series of 5 articles specifically relates to UK tax law, parallels can be drawn with other jurisdictions. We believe it is important that investors are informed and that we have the tools and alliances to help us navigate complex tax regulations.
Welcome to part 1 of our UK Tax Series.
For easy reference check out the other parts below:
Part 1: Do I need to pay Taxes on my Crypto Profits in the UK?
Part 2: What Crypto Activity do I pay tax on in the UK?
Parts 3 to 5 Coming soon!
Session 1 of 5 -“Do I need to pay tax on my cryptocurrency profits?”
In the fast-paced and rapidly evolving crypto assets space, everyone is asking the same question; “Do I need to pay tax on my cryptocurrency profits?”
Well, let’s start with this. Globally, the taxing authorities have attempted to offer clear guidance. But it’s still not clear cut and there is a real block and heavy chain (see what we did there?!) between what crypto technologies represent, and how the taxing authorities perceive it.
Let’s talk about the UK for now.
HM Revenue & Customs (HMRC) has advised it considers crypto to be a type of property, like stocks and shares, gold, or antiques. Nothing is straightforward in the infant world of crypto, however! In the UK, HMRC guidance means you are expected to pay tax on your profits from your crypto activity. The type of tax you pay will depend on how you trade your
crypto, and the type of gains, profits, or rewards earned.
Global taxing authorities are fighting hard to ensure the right amount of tax is paid at the right time, including demanding data from crypto exchanges about their users. This is a clear sign that HMRC and its overseas counterparts are serious about taxing crypto.
What’s confusing for many is there is no specific crypto tax law.
HMRC’s guidance is not legislation and is being contested by some major tax professionals. This is creating a very tricky situation for taxpayers and tax advisors because those who really understand crypto and its’ technologies, feel like some of the tax guidance are trying to put square pegs into round holes.
In other words, they are shoehorning new technology into tax legislation that’s been around for a very long time.
In the UK, Capital Gains Tax (CGT) has been around since the 1960s, a time when blockchain, distributed ledgers, and crypto would have been thought of as science fiction; think Flux Capacitor from Back to the Future, that’s how far-out today’s crypto lingo would have seemed!
Talking of the future, many crypto investors speak of going to ‘the Island’ one day.
Imagine sailing off into the sunset with your crypto millions, finding your own block of land, or an entire island, and living happily ever after. Sounds nice, doesn’t it?!
Well, the taxing authorities are also including data on crypto investors in the information they collect across borders with each other. So beware, your island may not be tax-free! Despite such data grabs, the world of crypto is moving so fast that tax authorities are currently being forced to play catch up.
Do they understand the rules of the game, or will there always be a brain block?
The rapidly advancing nature of crypto has also seen the emergence of the decentralized Finance industry, with amazing protocols like Rex! This is a whole new crypto sector that completely removes the banks and middlemen, replacing them with smart contracts, distributed ledgers, and automated money markets.
Fun Fact! Anyone with an internet connection can buy, sell, lend and borrow crypto, but with real-world utility at the heart of it. The crypto industry will continue to test the boundaries of existing tax law and will no
doubt push the lawmakers into places they have never even imagined.
Have you heard of privacy chains and private coins? Without fair and proper tax law, it’s highly likely billions of pounds worth of funds will flow into private coins, meaning the world’s taxing authorities will no longer control its own money, and in turn taxing rights. The loss of tax revenues is a major concern for all governments and is the biggest threat to how the modern world operates, ever.
We know what you’re thinking. How do I comply with everything?!
In terms of record keeping, HMRC expects detailed records to be kept for each and every trade. This could be a significant task for day traders, or those who frequently move and exchange their crypto. Trading bots can perform thousands of transactions daily, so without proper reporting apps, this could make matters even harder.
When activity falls within Capital Gains Tax, there are complex rules that should be used to cover gains, depending on whether assets are bought and sold on the same bday or within a 30-day period. Many investors will often rely on the exchanges for their records, but this could be risky, especially if an exchange fails, or if it doesn’t keep data for long enough.
HMRC’s current guidance means there are a variety of triggers that can cause a taxable event. Gifting your crypto. Selling it. Exchanging one crypto for another. Staking it and earning rewards. Plus many more types of activities!
Talking of Rex’s amazing staking features, a problem for investors is that the current tax guidance can result in very unfair taxes being paid.
Imagine a 500% tax rate. That’s what you might get in crypto. Don’t worry, this is where Rex University and its Partners can help. The good news is HMRC knows the current system of guidance doesn’t work well. They are working hard with our partners, like Charlton Baker, to find a better way
with tax laws.
Just like Rex. Simple and flexible and fair for everyone.
Check out www.charltonbaker.co.uk/news-blog and filter by crypto assets for much more detail.