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penninah

Are Crptocurrencies taxable?

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Hi there,

I have decided to trade in cryptocurrencies and I have gathered a tonne of information about them. I therefore know cryptos are not regulated by any monetary authority. However, I came across an article indicating that cryptos are taxed. Is it true cryptos are taxed or its a case of misinformation?

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Hi Penninah,

Even though a cryptocurrency is a digital currency, when it comes to taxation, it is treated as an asset. Cryptocurrencies attract a capital gains tax when disposed of. HMRC defines “disposal” as follows.

  • Paying for goods and services using crypto assets
  • Trading one type of crypto assets for another different one
  • Gifting crypto assets to someone
  • Disposing of crypto assets to get money 

 

Cryptocurrency gains are calculated using share pooling. This method calculates the average cost of all your current assets to determine the value of assets you are selling. The amount of tax you will pay is guided by your income tax bracket as well as the marginal rate of tax. However, you are exempted from capital gains tax for transactions below £11,700.

 

Other kinds of cryptocurrency transactions include the following.

  • When workers and freelancers are paid using cryptocurrency instead of cash.
  • When miners are paid in cryptocurrencies after mining cryptocurrencies

For these two transactions, you pay national insurance contributions and income tax.

 

There is a bit of relieve in cryptocurrency taxes because you are not required to pay capital gains tax in the following instances.

  • For charitable donations, unless when they sell the cryptocurrency more expensively than they bought it.
  • When you purchase crypto.


 

You should make sure to keep records of your cryptocurrency transactions. Similarly, indicate each source of your crypto assets for tax purposes. This will make it easy for you to verify the tax deducted.

 

Edited by Parker

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