The tax rules for Bitcoin

What are the tax rules for Bitcoin and other cryptocurrencies?

We are often asked about the tax rules for Bitcoin and other cryptocurrencies. HMRC says that cryptocurrencies “have a unique identity and cannot be directly compared to any other form of investment activity of payment mechanism”. This means the tax position needs to be “looked at on a case by case basis taking into account the specific facts”.

Understanding the tax rules for Bitcoin
Understanding the tax rules for Bitcoin

In HMRC’s eyes, the tax rules of Bitcoin, whether buying or selling, can fall into one of three classifications:

  • Short-term speculating like gambling or betting wins. This means it’s not taxable, neither can you get relief if you make a loss
  • buying and selling with the intention to make a gain – if trading profits are liable to income tax and losses are tax deductible. HMRC looks for trends that point towards trading e.g. a high volume of transactions in a short space of time, but this isn’t conclusive by itself
  • occasional investments – gains and losses made from buying and selling are within the scope of CGT and will be taxed or relief given according to the usual rules. Capital gains and losses on Bitcoin are chargeable or allowable for CGT (for individuals) and for corporation tax (for companies)

HMRC is essentially treating Bitcoin as it would foreign currency.

Unless you’ve already used your annual CGT exemption, try to steer your buying and selling in that direction, that way gains you make up to £11700 in 2018/19 will be tax free.

Companies need to watch out for loan relationship rules. These apply where there’s a debtor/creditor relationship. Special rules apply for taxing such transactions.

HMRC says that if the precise valuation of Bitcoin for tax purposes isn’t clear, its valuation office will give its view of the value to be used for working out gains and losses.

Bitcoin mining is a different ball game. HMRC will definitely consider the activity as a trade and might lump in any profits and losses from buying and selling the currency.

HMRC considers Bitcoin mining as outside the scope of VAT, which means money received by miners for making a Bitcoin deal is exempt. If Bitcoin is exchanged for other currencies, no VAT is due on the value of the transaction.

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