How is Crypto taxed in the UK?
1. Sale of cryptocurrencies and NFTs
The sale of cryptocurrencies is according to Sec. 21 TCGA (Taxation of Chargeable Gains Act UK) to be allocated to capital income. Gains on realized capital gains are subject to income tax at an income tax rate of 10% (12,300 GBP - 50,270 GBP), 20% (50,271 GBP - 150,000 GBP) and 40% (>150,000 GBP). Any income below the 12,300 GBP allowance is exempt from Sec. 21 TCGA. Taxable transactions occur, if a cryptocurrency is exchanged for a central bank currency such as GBP or USD, or for another cryptocurrency. The same rule applies to NFTs.
EXAMPLE: On January 1st, 2022, A purchases 1 BTC for 10,000 GBP. On February 1st, 2022, A sold this 1 BTC for 100,000 GBP. The realized gain of 90,000 GBP (100,000 GBP - 10,000 GBP) is fully taxable at the income-related capital gains tax rate of 20%.
How crypto sales are reported in CoinTracking
The purchase and sale of crypto is entered into CoinTracking with the transaction type "Trade".
Profits and losses from cryptocurrency/NFT trading are reported in our tax report under "1. Capital gains and losses summarized according to Sec. 21 TCGA".
2. Crypto to crypto exchange
For tax purposes, an exchange of cryptocurrency for another cryptocurrency is considered a sale. As a result, the capital gains tax related to income applies in this scenario.
how crypto to crypto trades are reported in CoinTracking.
The purchase and sale of crypto with crypto is entered into CoinTracking with the transaction type "Trade".
Profits and losses from cryptocurrency trading are reported in our tax report under "1. Capital gains and losses summarized according to Sec. 21 TCGA".
3. Getting paid with cryptocurrency
The taxation of income received in the form of cryptocurrency depends on the nature of the activity generating the income. Different types of income, such as commercial enterprise, self-employment, employment, rental income, and privately run business, are subject to different tax laws and regulations. It's important to consider not only income tax, but also other taxes such as trade tax, sales tax, wage tax, or social security contributions that may be applicable. When re-selling or exchanging the cryptocurrency, the net wage should be recognized as the acquisition cost for tax purposes.
EXAMPLE: A receives 3 BTC net (worth 60,000 GBP) as wages from his employer on January 31, 2022. On 02/15/2022, A buys a Tesla Model S worth 80,000 GBP for 3 BTC. The exchange is a related business. The gain of 20,000 GBP (=80,000 GBP - 60,000 GBP) is taxable at the income-related capital gains tax rate of 10%.
In the CoinTracking tax report, wage income can be shown as non-taxable income. However, we would like to point out that this income does not fall under capital income in the tax return, but under dependent income and must be treated separately. Here we recommend consulting a tax advisor.
How crypto-income is reported in CoinTracking
The income with crypto is entered into CoinTracking with the transaction type "Income".
You can find it in our tax report under "1.2 Miscellaneous Income".
4. Get gifts in the form of crypto
If cryptocurrencies and tokens are given away, personal income tax applies unless the tokens are transferred to the life partner or spouse. The acquisition costs and the acquisition date of the donor are only transferred to the recipient if it is the spouse or life partner. The donor is responsible for paying tax on the transfer, and the date of transfer is considered the date of acquisition for the recipient with the current market value as the acquisition cost.
EXAMPLE: B transfers 1 BTC to A's wallet with a value of 15,000 GBP on January 1st, 2022. On February 1st, 2022, B will transfer an additional 1 BTC to A with a value of 19,000 GBP. B will be responsible for paying taxes on the increase in value of the transferred tokens as capital income. The acquisition cost for A will be the market value of the transferred BTC on January 1st, 2022 and February 1st, 2022 respectively.
Sale of crypto gifts
The sale of cryptocurrencies that were received as gifts is considered an agreed transaction and is subject to income-based capital gains tax. The acquisition cost for the sold coins is the market value at the time they were transferred to the seller.
EXAMPLE: On March 1st, 2022, A sells the 2 BTC that A received from B on January 1st, 2022 and February 1st, 2022. The value of the BTC has risen to 20,000 GBP per BTC. The gain of 6,000 GBP (40,000 GBP - (15,000 GBP + 19,000 GBP)) is subject to income-related capital gains tax.
How crypto gifts are reported in CoinTracking
For incoming crypto gifts, CoinTracking has the transaction type "Gift / Tip".
Incoming crypto gifts are reported in the Tax Report under "3.1. Donations and Gifts Received".
5. Income as a reward or bonus (e.g. referral rewards or sign up rewards)
Income earned through rewards or bonuses is subject to the personal income tax rate according to the Income Tax Act (ITA). If the tax allowance of 12,570 GBP is exceeded, the income will be taxed at the personal tax rate. The rewards are valued at the market value at the time they are received.
EXAMPLE: A registered on Crypto.com on January 1st, 2022, and received 500 CRO tokens with a value of 3,000 GBP as a reward. The 3,000 GBP in rewards will be included in A's taxable income and will be subject to his personal tax rate, along with any other income he may have.
Sale of Rewards
The sale of rewards or bonuses in the form of cryptocurrencies or tokens is considered a disposal transaction and is subject to income-related capital gains tax.
EXAMPLE: On February 1st, 2022, A sold the 500 CRO tokens that he received as a sign-up bonus on January 1st, 2022, with a current value of 20,000 GBP. The realized gain of 17,000 GBP (20,000 GBP-3,000 GBP) is subject to income-related withholding tax rate of 10%.
How tax for crypto bonuses is reported in CoinTracking.
Rewards are entered in CoinTracking with the transaction type "Rewards/Bonuses".
You can find it in our tax report under "1.2 Miscellaneous Income summarized according to Sec.21 TCGA".
7. Income from mining (Hobby)
If there is no commercial operation in mining, the income is taxable at the personal income tax rate. The mining rewards are valued at market value at the time of inflow.
EXAMPLE: A is a bitcoin miner with his private PC at home. On January 1st, 2022 he will receive 0.01 BTC worth 5,000 GBP as a mining reward. Thus, the mining rewards are taxable at the personal tax rate of A.
Sale of Mining Rewards (Hobby)
The sale of mining rewards is considered a sale under Sec. 21 of the Taxation of Chargeable Gains Act (TCGA) in the UK and is subject to income-related capital gains tax. The mining rewards do not fall under business income.
EXAMPLE: On February 1st, 2022, A sold the mining rewards from January 1st, 2022, with a current market value of 0.01 BTC or 20,000 GBP. The realized capital gain of 15,000 GBP (20,000 GBP-5,000 GBP) is subject to income-related capital gains tax rate of 10%.
How crypto mining is reported in CoinTracking (hobby)
Income from mining is entered in CoinTracking with the transaction type "Mining".
You can find it in our tax report under "1.2 Miscellaneous Income summarized according to Sec.21 TCGA".
9. Income from operating a masternode (Hobby)
If there is no commercial operation when operating a masternode, the income generated from the masternode is considered as income according to Sec. XY of the Income Tax Act (ITA). The rewards are valued at the market value at the time they are received, similar to mining rewards.
EXAMPLE: A runs a masternode on his private PC at home. On January 1st, 2022, he received 5 ETH with a value of 5,000 GBP as a reward. The rewards are included in A's taxable income and will be subject to his personal income tax rate.
Sale of Masternode Rewards (Hobby)
The sale of rewards, which does not fall under income from business operations, is a sale transaction under Sec. 21 TCGA and is taxed at the income-related capital gains tax rate.
EXAMPLE: On February 1st, 2022, A sells the rewards received on January 1st, 2022, with a current market value of 5 ETH or 20,000 GBP. The realized capital gain of 15,000 GBP (20,000 GBP-5,000 GBP) is subject to income-related capital gains tax rate of 10%.
How income from operating a masternode is reported in CoinTracking
Income from operating a masternode is entered into CoinTracking with the transaction type "Masternode".
You can find it in our tax report under "1.2 Miscellaneous Income".
9. Income from mining (Commercial)
Crypto mining is considered a commercial enterprise, if it meets the definition of a commercial enterprise. This is particularly the case if the miner operates in a legal form that corresponds to a commercial enterprise or if the miner conducts an independent, sustainable, and profit-oriented activity in general commercial transactions.
When determining commercial profits through a balance sheet and income statement, the mined coins can be recorded as fixed assets under financial assets or as current assets under other assets. The initial valuation is based on the acquisition costs, i.e. the market value at the time of mining, plus any associated costs.
When determining commercial profits through an income surplus calculation, the mined coins should be listed as operating income, less any associated costs.
Sale of Mining Rewards (Commercial)
If the mined coins are sold, they must be reflected in the appropriate profit determination method, whether it's through a balance sheet and income statement or an income surplus statement. This would include any capital gain or loss resulting from the sale of the mined coins and the tax implication that comes with it.
How Mining Rewards are reported in CoinTracking (Commercial)
Commercial income is entered in CoinTracking with the transaction type "Mining (commercial)".
Income from mining (commercial) is shown in CoinTracking in the tax report under "3.3. Mining (commercial)".
9. Income from operating a Masternode
The operation of a masternode is considered commercial if it meets the definition of a commercial enterprise. This is particularly the case if the operator conducts an independent, sustainable, and profit-oriented activity in general commercial transactions.
When determining commercial profits through a balance sheet and income statement, the rewards from masternode can be recorded as fixed assets under financial assets or as current assets under other assets. The initial valuation is based on the acquisition costs, i.e. the market value at the time of receiving the rewards, plus any associated costs.
When determining commercial profits through an income surplus calculation, the rewards from masternode should be listed as operating income, less any associated costs.
Sale of rewards of operating a masternode
If the “mined” coins are sold, they must also be shown in the respective profit determination (balance sheet and income statement/revenue surplus statement).
How income from operating a masternode is reported in CoinTracking
Income from operating a masternode is entered into CoinTracking with the transaction type "Masternode".
You can find it in our tax report under "1.2 Miscellaneous Income".
11. Airdrop Revenue
Earnings from airdrops are subdivide into two categories:
If consideration, such as the deposit of contact information or registration on a page, was given for receiving airdrops, the airdrops will be considered income of the Income Tax Act (ITA) and will be subject to the personal income tax rate.
If no consideration is provided, airdrops are tax-free. The acquisition cost of the coins is the market value at the time of receipt.
EXAMPLE: A registers for a whitelisting with his real name and home address, he also follows the project on Twitter, registers on the Discord channel and invites 3 of his Twitter friends under an invite tweet of the project. On January 1st, 2022, 10 SOL with a value of 1,000 GBP will be airdropped into his wallet. The deposit of his personal data and the interaction on social media is considered a service rendered. The SOL received is valued at the market value of 1,000 GBP and will be subject to tax at A's personal tax rate.
EXAMPLE: B registers for a whitelisting by simply linking his wallet on the platform. On January 1st, 2022, 10 SOLs with a value of 1,000GBP will be airdropped into his wallet. B has not provided any service by not storing any personal data, therefore the SOL received is tax-free. The acquisition costs are valued at the market rate at the time of receipt.
Sale of airdrops
The sale of airdrop coins is according to Sec. 21 TCGA a sale transaction. The profits are taxed at the income-related capital gains tax rate.
EXAMPLE: On February 1st, 2022, A sold the 10 SOL received on January 1st, 2022 for 25,000 GBP. The realized capital gain of 15,000 GBP (25,000 GBP - 10,000 GBP) is subject to income-related capital gains tax rate of 10%.
EXAMPLE: On February 1st, 2022, B sold the 10 SOL received on January 1st, 2022 for 25,000 GBP. The realized capital gain of 15,000 GBP (25,000 GBP - 10,000 GBP) is subject to income-related capital gains tax rate of 10%..
How crypto airdrops are reported in CoinTracking.
Airdrops are entered in CoinTracking with the transaction type "Airdrop".
You can find it in our tax report under "1.2 Miscellaneous Income".
11. Staking Rewards
Staking rewards paid as a reward for participating in a staking pool fall under Sec. XY of the Income Tax Act (ITA). The staking rewards are valued at the market value at the time of receipt and are subject to the personal income tax rate.
EXAMPLE: A has deposited 10,000 ADA in a staking pool and after one month receives 1,000 ADA worth 500 GBP as a reward. A received income from the Reward that is taxed at his personal income tax rate.
Sale of Staking Rewards
The sale of staking rewards is subject to Sec. 21 TCGA a sale transaction. The profits are taxed at the income-related capital gains tax rate.
EXAMPLE: On February 1st, 2022, A receives 1,000 ADA worth 500 GBP as staking rewards. On April 1st, 2022, A sells the 1,000 ADA for 15,000 GBP. The realized capital gain of 14,500 GBP (15,000 GBP - 500 GBP) is subject to income-related capital gains tax rate of 10%.
How income from staking is reported in CoinTracking
Income from staking is entered into CoinTracking with the transaction type "Staking".
You can find it in our tax report under "1.2 Miscellaneous Income summarized according to Sec.21 TCGA".
13. Lending Rewards
Lending rewards paid as a reward for participating in a lending pool fall under the Income Tax Act (ITA). The rewards are valued at the market value at the time of receipt and are subject to the personal income tax rate.
EXAMPLE: A has deposited 10,000 ADA in a lending pool and after one month receives 1,000 ADA, worth 500 GBP, as lending rewards. A received income from the Reward that is taxed at his personal income tax rate.
Sale of Lending Rewards
The sale of lending rewards is regulated by Sec. 21 TCGA a sale transaction. The profits are taxed at the income-related capital gains tax rate.
EXAMPLE: On January 1st, 2022, A receives 1,000 ADA worth 500 GBP as lending rewards. On February 1st, 2022, A sold the 1,000 ADA for 15,000 GBP. The realized capital gain of 14,500 GBP (15,000 GBP - 500 GBP) is subject to the income-related capital gains tax rate of 10%.
How crypto lending is reported in CoinTracking
Income from lending is entered in CoinTracking with the transaction type "Lending".
You can find it in our tax report under "1.2 Miscellaneous Income".
13. Earnings from trading with margin, derivatives and futures
Profits from margin trades, derivatives and futures are considered a separate type of income generated through the use of financial instruments. These gains or losses are not offset against other capital gains and have their own allowance of 1,000 GBP. If the income generated falls below this exemption amount, it does not need to be reported in the tax return. In addition, losses from these types of trades can be carried back to the previous year and carried forward to the following year for tax purposes.
EXAMPLE: On January 1st, 2022, A buys perpetual futures contracts for 2 ETH worth 2,000 GBP. On April 1st, 2022, the value of the 2 ETH rose to 3,500 GBP and the value of the futures contract also increased. A sold his futures on April 1st, 2022. Since the savings allowance of 1,000 GBP has been exceeded, the excess of 500 GBP (1,500 GBP profit - 1,000 GBP allowance) is subject to the income-related capital gains tax rate of 10%.
If profits/losses have arisen from foreign currency transactions, these are shown separately in CoinTracking under income from foreign exchange trading.
How income from trading margin trades, derivatives, and futures is reported in CoinTracking
Gains from trading in derivatives/futures are entered in CoinTracking with the transaction type "Derivatives/Futures".
Gains and losses from trading in margin, derivatives and futures are shown in CoinTracking in the Tax Report under "1.1.3 Income from trading in derivatives. Other transaction types related to trading in margin, derivatives and futures: - Margin Gain - Margin Loss - Derivatives/Futures Loss.
14. Paying for goods or services with cryptocurrencies
The payment of goods and services with cryptocurrencies is also equated to the sale/exchange for tax purposes.
EXAMPLE:On March 1st, 2022, A buys a car worth 50,000 GBP using 10 BTC. A had purchased the 10 BTC for 35,000 GBP on January 1st, 2022. The purchase of the car is also considered a sale of the 10 BTC according to Sec. 21 of the Taxation of Chargeable Gains Act (TCGA). The resulting capital gain of 15,000 GBP (50,000 GBP - 35,000 GBP) is subject to the income-related capital gains tax rate of 10%.
15. Giving gifts in form of crypto
Giving away cryptocurrency creates a tax burden for the person giving the gift. The expenses cannot be deducted as acquisition costs from the profits of other crypto sales. The purchase costs and the time of purchase are passed on to the recipient.
How crypto gifts are reported in CoinTracking
Crypto gifts are entered into CoinTracking with the transaction type "Gift".
Outgoing crypto gifts are reported in the Tax Report under "1.1.2.Outgoing gifts".
16. Make donations in the form of crypto
Crypto donations create a tax burden for the person making the donation. Donations to charitable organizations may be tax deductible. A donation receipt is required for this. The expenses cannot be deducted as acquisition costs from the profits of other crypto sales.
How outgoing crypto donations are reported in CoinTracking
Outgoing crypto donations are entered into CoinTracking with the transaction type "Gift".
Outgoing crypto donations are reported in the Tax Report under "3.2.Outgoing donations summarized".
18. Stolen Cryptocurrency
Stolen coins cannot be sold with their acquisition costs, reducing profits.
EXAMPLE: On January 1st, 2022, A buys 1 BTC worth 10,000 GBP. On March 1st, 2022, A discovers that a third party has stolen his private key and transferred the 1 BTC to another wallet. Unfortunately, A cannot claim the loss as a deduction. It is recommended that A consults a tax advisor in this situation, as in some cases the costs may be recoverable with the appropriate guidance.
How stolen crypto is reported in CoinTracking
Stolen crypto are entered in CoinTracking with the transaction type "Stolen".
You can find it in CoinTracking's tax report under "3.2. Lost and stolen coins".
18. Lost Cryptocurrency
Lost coins cannot be sold with their acquisition costs, reducing profits.
EXAMPLE: On January 1st, 2022, A buys 1 BTC worth 10,000 GBP. On March 1st, 2022, A discovers that he no longer has access to the wallet where the 1 BTC is stored. Unfortunately, A cannot claim the loss as a deduction. It is recommended that A consults a tax advisor in this situation, as in some cases the costs may be recoverable with the appropriate guidance.
How lost crypto is reported in CoinTracking
Lost crypto are entered in CoinTracking with the transaction type "Lost".
You can find it in CoinTracking's tax report under "3.2. Lost and stolen coins".
Explanations to the CoinTracking tax report
1.1. Realized cryptocurrency capital gains and losses
1.1.1 Realized cryptocurrency capital gains according to Sec. 21 TCGA
According to UK HM Revenue & Customs (HMRC) regulations, gains from trading cryptocurrencies in UK must be taxed as capital gains under Section 21 of the Taxation of Chargeable Gains Act 1992 (TCGA).
The tax rate for capital gains under Section 21 of the TCGA is typically 10% or 20%, depending on the income tax rate applicable. Profits from cryptocurrency trading, investments in cryptocurrencies, and losses resulting therefrom fall under Section 21 of the TCGA.
The gain is calculated as the difference between the purchase value and the sale value. Losses resulting from cryptocurrency trading are taken into account when filing tax returns and can help reduce any capital gains that may exist.
According to HMRC, gains and losses from trading cryptocurrencies in GBP must be valued according to the principles of "First In First Out" (FIFO), unless another valuation method is deemed more appropriate by the taxpayer.
Losses from cryptocurrency trading cannot be offset against other capital gains to reduce any existing income tax charges. However, the total loss can be carried forward to future tax years up to a certain amount. Losses are reported separately in the tax report.
1.1.2 Realized derivatives capital gains
All trading gains and losses in derivatives, margins and futures are listed here. These gains and losses qualify as capital gains as well and thus are taxable at the capital gain tax rate of 10% or 20%, depending on the total capital gains. In the tax report, the gains and losses are shown separately.
1.2 Miscellaneous Income
According to the UK HM Revenue & Customs (HMRC) regulations, income in the form of cryptocurrencies must be taxed as private income in UK. The tax rate depends on the taxpayer's respective income tax rate. Profits from mining (hobby), lending, dividends, interest, bonus/rewards, staking, airdrops, masternodes and losses resulting from them fall under this type of income.
The income is the market value at the time of inflow. This income can be offset against other income, such as wage income. A total loss up to a certain amount can be carried forward to future tax years.
2.1 Non-taxable private sale income
All non-taxable private sale income is issued here. For the most part, cryptocurrency income qualifies as capital gains, as explained in Section 1.
3. Other cryptocurrency and NFT payments during the calendar year 2022
Incoming and outgoing donations and gifts, lost and stolen cryptocurrency, commercial mining and minting are reported separately.
Whether and how lost and stolen cryptocurrency can be claimed for tax purposes must be clarified with a personal tax advisor. The same applies to mining and minting and, in particular, the question of whether mining/minting can still be classified as private asset management or commercial income.