Investment vs trade
When is trading taxable?
We must highlight that there is a difference between trading (buying and selling crypto) and the meaning of trading for tax purposes.
For tax purposes, trading used to describe when there is a “venture in the nature of trade”. This is an archaic element from case law that is used to describe, essentially, when there is a business.
That does not mean that trading in crypto is also a venture in the nature of trade. this is important as there are very different tax implications.
Typically, the buying and selling of crypto will be treated as an investment activity. This means that any profits (gains) from transactions are potentially liable to capital gains tax. Any losses can be offset against your gains. While there is an annual exemption for capital gains, exceeding the threshold, including selling other assets such as shares or property, will result in a liability for capital gains tax.
However, if you buy and sell crypto more like a job then you may be considered to be carrying on a trade. If this is the case, the tax is based on the profits that you make and charged to income tax.
Deciding if your activity is sufficiently sophisticated to be considered as a trade is complicated and you should seek specialist professional advice from crypto tax accountants to avoid potential problems when filing returns with HMRC.
Just remember that when you buy crypto, whilst it is commonly called a ‘trade’, this does not mean the same as trading for tax purposes.