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Crypto gains must be included on tax returns

It is important to report gains on crypto assets, such as Ethereum, Bitcoin and non-fungible tokens (NFTs), on tax returns as they are subject to income tax and capital gains tax (CGT)

When an investor realises the value of a crypto asset for tax purposes and makes a profit over a certain amount (currently £12,300), they are obliged to pay CGT by the 31 January following the end of the relevant tax year, warned the Chartered Institute of Taxation (CIOT) and Association of Taxation Technicians (ATT).

Gains made in 2021/22 need to be reported by 31 January 2023 with all necessary tax paid. Likewise, if a loss has been realised, this can only be offset against other gains from the same or future years if they are reported to HMRC.

Those who are trading in crypto assets, or receive them for services they carry out, will be subject to income tax on their profits.

Tax experts at the CIOT and ATT are warning that many investors are not aware of these obligations or of how wide the range of circumstances are in which gains can be ‘realised’ for tax purposes.

The phased reduction of the CGT annual exemption from £12,300 to £6,000 in April 2023 and to £3,000 from 2024 will only make the issue more acute.

Gary Ashford, chair of the joint CIOT/ATT crypto assets working group, said: ‘Crypto asset investors need to check carefully this month to make sure they are tax compliant.

‘Not only can cryptocurrency investments trigger capital gains tax liabilities that are not obvious to the investor, but tax can be payable even where the investor does not think his or her crypto investments have been profitable.

‘Selling, lending or ‘staking’ crypto assets – or potentially even just transferring assets between crypto sites and portfolios – will usually trigger a disposal in the tax year in question, even if no cash is taken out and even if the portfolio now shows that there would be losses if all investments were cashed now.

‘Events since the end of the tax year (since 5 April 2022 for the gains that need to be reported this month) are irrelevant to the tax liability for that year, which is now closed.’

The relative newness of crypto assets means that some of the tax rules are not clear, and HMRC is concerned that there is a significant degree of underreporting of gains.

‘A further problem is that because tax laws were never written with crypto assets in mind, the tax treatments of some activities are unclear or controversial so taxpayers and their agents need what little time there is left before 31 January to assemble information and think about the right way to report it on the tax return,’ said Ashford.

‘These problems should not be ignored: HMRC have identified that there is a risk of underreported gains in this area and have a special focus on crypto compliance.’

According to HMRC research, 84% cent of crypto asset owners have not sought tax advice.

There are also issues for non-doms with crypto asset portfolios, particularly depending on whether funds have been remitted to the UK for purchases.

‘People resident in the UK but with a long-term ‘domicile’ elsewhere (non-doms) who are currently claiming the remittance basis may not realise that HMRC regard any crypto investments held by UK residents as UK situs assets, generating income and gains fully taxable in the UK,’ warned Ashford.

‘If they use offshore income and gains to acquire a crypto portfolio they could well be making remittances and thus triggering UK tax charges at their highest rate of tax. Crypto assets are chargeable for inheritance tax purposes too, so that is another aspect non-doms need to be aware of.

 Crypto investors who do not have tax agents need to think about taking advice on this.’

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