Help for individual crypto investors

We provide individuals with unparalleled crypto tax advice, helping to structure their affairs to make them as tax-efficient as possible, while also making sure the correct amounts of tax is paid.

If you have been involved in investing, trading, arbitrage exchanges or margin trading and are uncertain about your tax position and payments to date, we can review your tax position filings and accounts and rectify any problems we discover. 

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.

Decentralised Finance – Lending and staking

HMRC guidance was released that surprised the community. However, their view from existing law based on beneficial ownership. When you stake a token – be it on a centralised or decentralised platform – this can lead to a tax charge.  

The current rules are being considered by HMRC, which should simplify the lending and staking. However, this does not mean that the existing rules are not to be followed. 

Broadly speaking, when you provide a token to either a CeFi or DeFi platform, this may be a disposal for tax purposes. This means that by adding liquidity to a platform, it could create a tax charge, despite the fact that it may appear that you have not sold the tokens. Whether there has, or hasn’t, been a disposal depends on whether there has been a change of “beneficial ownership”. Beneficial ownership is based on common law and is complex and will depend on the facts (including terms and conditions). 

It is not possible to give a one-size-fits-all answer if by staking you have made a tax charge, and we recommend caution, as this is an example where professional tax advice is important due to the particular complexity of the topic. 

The tax consequences do not stop there, and returns that are provided by the platform are taxable. However, depending on how the platform provides the returns (again down to the terms and conditions) depends on whether it will be taxed to income tax or capital gains tax. This can create a big difference to your tax bill as it is a capital return there is no charge until you sell the tokens. However, if it is not capital, it is chargeable to income tax at the time of receipt – even if you have not sold the tokens. 

Cryptoassets and Inheritance Tax

Cryptoassets are in the same asset class as property for inheritance tax purposes and are therefore subject to inheritance tax. Effective tax planning advice should be undertaken in good time ahead of tax filing deadlines to ensure that your tax affairs are in order.

Negligible Value Claim

It is no secret that the cryptoasset sector has had a rough patch, with a number of large platforms having to cease operations. Notable ones include FTX, 3AC, and Celsius, to name but a few. Just as cryptoassets create unique challenges for taxation and legal advisors, bankruptcy is no different. 

There is also an impact of bankruptcy on customers of the platforms and while it may appear that cryptoasset exchanges function in a similar manner to banks, they are not banks therefore do not have the same protections. For example, when users provide liquidity to lending platforms, such as Celsius, they may believe that in the event of bankruptcy they will be able to get their tokens back. After all, they are your property. However, in most cases, they actually become the property of the platform. 

For the individual, the tax outcome can differ. Tax relief may be possible, though, as a negligible value claim can be made in certain circumstances. However, as the legislation was not intended for cryptoassets, it is not as straightforward as for other assets.  

Negligible value claims need to be carefully considered when they meet the necessary criteria, and we can help you in these unfortunate circumstances.