Posted on: 14th March 2018

How are profits made from trading cryptocurrencies taxed in the UK?

Recent months have seen high price volatility in the cryptocurrency market. But even JP Morgan boss Jamie Dimon has said that he regrets calling Bitcoin a “fraud”; now saying that he believes that blockchain technology is “real”. Cryptocurrencies and the technology that underpins them are here to stay in one form or another; and those trading or investing in cryptocurrencies are well placed to reap the rewards.

If you’ve put money in cryptocurrencies do you know how the profits or gains you make from trading cryptocurrencies are taxed in the UK? You may be pleased to know that whilst HMRC issued a briefing in March 2014, they haven’t laid down any new tax rules relating specifically to cryptocurrencies.

You can read HMRC’s briefing here:

https://www.gov.uk/government/publications/revenue-and-customs-brief-9-2014-bitcoin-and-other-cryptocurrencies/revenue-and-customs-brief-9-2014-bitcoin-and-other-cryptocurrencies

Most people investing in cryptocurrencies will be liable to Capital Gains Tax on the gains they make when they dispose of their cryptocurrency holdings.  This is based on the premise that money is put into cryptocurrencies as an investment. This is in contrast to a “trader” of cryptocurrencies. Where the investor buys and holds cryptocurrencies before selling them, the trader’s intention is to re-sell cryptocurrencies quickly and realise a profit.

For those who buy and hold cryptocurrencies and are liable to Capital Gains Tax, it is simply a case of following the Capital Gains Tax rules. You can read about Capital Gains Tax in our factsheet. Not so easy for the “trader” of cryptocurrencies.

If you trade cryptocurrencies and the profits you make are your only source of income then you will need to consider whether your cryptocurrency trading activities constitute a self-employed endeavour. This is done by reviewing HMRC guidance and more specifically the Badges of Trade. You can take a look at the Badges of Trade below:

https://www.gov.uk/hmrc-internal-manuals/business-income-manual/bim20000

If your cryptocurrency trading activities aren’t a self-employed activity then there is the possibility that your activities may be considered to be speculative in nature and not taxable. If your cryptocurrency trading activities aren’t self-employment or speculative, then by default you will be liable to Capital Gains Tax on the gains arising from your cryptocurrency trading activities. If you’re a “trader” of cryptocurrencies and would like help studying the Badges of Trade and ascertaining the tax implications of your activities we’d be happy to help.