Are Cryptocurrencies Taxable ?

HMRC has not yet introduced any new legislation that relates specifically to cryptocurrencies as it believes that the existing legislation is sufficient to impose any necessary tax. If you have sold, gifted or spent cryptocurrency in the tax year ending 5 April 2017, you may need to declare any profit or gains on your self-assessment tax return due 31 January 2018.

Cryptocurrencies can be obtained either via "mining", which allows users' computers to calculate complex mathematical equations to verify each transaction in exchange for the cryptocurrency, or through an exchange platform to purchase bitcoins for real world currencies.

How much tax do you need to pay on cryptocurrency profits?

Individuals involved in the mining of cryptocurrencies will have to declare their profits as income, and will be liable to income tax and national insurance. Any expenses related solely to the trade of mining will be a tax deductible expense from revenues generated from the sale of the currency, with the profits reported to HMRC and tax duly paid.

If the bitcoins were purchased, profits made by individuals at the time of crystallisation will generally be subject to capital gains tax at a rate of 10% or 20% (depending on the total amount of your taxable income,) after deducting the annual CGT allowance. Where the crypto-currencies were bought and sold through a UK company, taxable profits will be subject to corporation tax at a rate of 19%.

Similarly, a CGT charge arises if you gift your cryptocurrency or use it to buy other capital assets. Any gains in the value of your cryptocurrency between the date of acquisition and the date of disposal gives rise to a chargeable event, with the gains taxable at your respective CGT rate. If you are subject to corporation tax or income tax on your profits, similar rules apply.

Any tax liabilities relating to virtual currencies which arose in the year to 5 April 2017 need to be reported to HMRC on your self-assessment tax return by 31 January 2018, along with any tax payable. In the event of an enquiry, HMRC will be able to find out any unreported income on your self-assessment when proceeds from the disposal of virtual currencies are eventually converted to traditional currencies and transferred to a financial institution.

Please do not rely on the contents of this article to make any financial decisions about your tax obligations without specific legal advice.

The level and bases of taxation, and reliefs from taxation, can change at any time. The value of any tax relief depends on individual circumstances. If you are not sure