If you are part of the current boom in cryptocurrencies, then there is a good chance that you will wonder whether you should pay tax on them. The answer to this is yes. However, there are certain things that you need to understand and processes that you need to follow when it comes to paying tax on your crypto sales.
To help you understand more, we have put together our guide to the question, “do I pay tax on my crypto sales?”
The short answer is yes.
A simple way to answer this question is to say yes; you do need to pay tax on your crypto sales. But this only needs to happen if that crypto asset is disposed of. Disposal of a crypto asset can happen in a variety of ways.
What is a disposal?
You may convert it from one crypto to another, you may use it to purchase other crypto items, or you may even sell it so that you can receive flat money.
When you dispose of your crypto asset, in whatever way works for you, you need to pay capital gains on the gain that you made from disposing of it.
It is down to you to calculate your gain and, in turn, the capital gains that you need to payout.
What is a gain?
A gain is the sale price of the crypto asset minus its acquired value. This gain is then subject to a capital gains tax of 10% if you are at the basic rate or 20% if you are at the higher rate.
That said, you need to remember that you do receive a capital gains allowance each year. For the tax year 21/22, this amount was £12,300.
If you were to make a loss from your asset disposal, you might be able to offset this loss (or those losses if you have more than one) against your profits. Or you may be able to carry those losses forward to put them against future crypto gains.
How to calculate your gain
You need to understand and follow some essential rules when it comes to calculating your gains on crypto assets. The first thing you need to do is pool together all the different assets you have and then average out the cost.
An example of this is:
You purchase 1 BTC for £10,000 and then three more for £12,000. The pool of the 4 BTC would have an average of £11,500 each.
Pooling together your gains has to happen in a certain way, which you will need to understand before calculating your gains.
- Same day pooling- any assets disposed of on the same day are allocated to one another.
- Thirty days pooling- any assets that do not fit in with the same day pool would need to be added to a pool made up of those from 30 days of selling.
- General pool- any assets that remain will then need to be allocated to a general pool.
As well as working out your capital gains, you may also find that your crypto assets are subject to income tax. However, this is usually only applicable if you receive them through the mining process, and your mining activities can be seen as a trade.
If you need any specific advice on the tax implications of your crypto trading, staking or mining then please get in touch today.