In research, commissioned by HMRC, more than half of investors in cryptocurrency have limited or no understanding of capital gains tax and associated tax liability on crypto transactions.
Although in recent months the market has dropped off, many people made stunning gains before, and it has not escaped the notice of HMRC. Did you know, HMRC can track your cryptocurrency? They have even started sending out letters to some investors to nudge them to pay the correct tax.
The crypto, DeFi, and NFT world seem to move fast, and even the exchanges where you buy and sell them don’t always provide helpful reporting or guidance to help you with your taxes.
Most people buy crypto for investment purposes, which generally falls within the scope of Capital Gains Tax (CGT), but we are seeing many traders, even if you may consider yourself a casual one, fall within the scope of income tax. This brings different reporting requirements and tax rates and can easily catch people out.
As with hard currency, if the amounts you are dealing with are particularly substantial, it is useful to understand the tax rules so that you can plan, maximise your returns, and minimise your tax.
As is quite possible at the moment you may be sitting on losses, either paper or realised, that could be used to reduce your tax burden.
Lost or stolen crypto is becoming more and more common as their value increases, but HRMC guidance is very clear that it isn’t as simple as just treating it like a loss, for tax purposes.
There are many different scenarios to consider, but if you have bought or sold crypto or NFTs and are unsure about your tax and reporting obligations, please contact us and we can help you through it. If you are struggling to collate your data, we have a solution for that as well.