Showing posts with label capital gains. Show all posts
Showing posts with label capital gains. Show all posts

Thursday, January 25, 2024

Crypto assets in the UK: When is a tax return due?

Crypto assets, such as Bitcoin, Ethereum and other cryptocurrencies, have become increasingly popular in recent years as a form of investment, payment and alternative asset class. However, many crypto investors may be unaware of their tax obligations in the UK, or may find the tax rules confusing and complex.

In this blog post, we will try to provide a classification of the different types of crypto assets, how they are taxed in the UK and explain when a tax return is actually due as they are instances where you can avoid having to go through that if your profits and/or proceeds in the tax year are below certain allowances. 

What are crypto assets? 

Crypto assets are digital tokens that use cryptography to secure transactions and control the creation of new units. They are typically recorded on a distributed ledger, such as a blockchain, that is accessible to anyone on the network. Crypto assets can have different characteristics and functions, such as: 
  • Exchange tokens: These are intended to be used as a method of exchange or payment, such as Bitcoin or Litecoin. They do not provide any rights or obligations to the holder, other than the ability to transfer or exchange them. 
  • Utility tokens: These provide access to a current or future service or good, such as Ethereum or Filecoin. They may also have some exchange value, but their main purpose is to enable the use of a platform or network. 
  • Security tokens: These provide rights and obligations similar to traditional securities, such as shares or bonds. They may entitle the holder to dividends, interest, voting rights or ownership of an underlying asset or business. 
  • Stablecoins: These are designed to maintain a stable value relative to another asset, such as a fiat currency or a commodity. They may use various mechanisms to achieve this, such as backing by reserves, algorithmic adjustments or collateralisation. 

How are crypto assets taxed in the UK? 

HMRC does not consider crypto assets to be equivalent to currency or money, and therefore treats them as a traditional asset for tax purposes. In addition, HMRC considers that investing in crypto assets is not analogous to gambling (such that any profits made on investments in crypto assets would not be taxable). 

Depending on the nature and purpose of the crypto transactions, they may be subject to either Capital Gains Tax (CGT) or Income Tax (IT). The general principles are as follows: 
  • Capital Gains Tax (CGT):
    This applies when an individual disposes of crypto assets that they own as a personal investment. A disposal occurs when the individual sells, exchanges, transfers or gifts their crypto assets to another person. The taxable gain is calculated by deducting the allowable costs (such as the acquisition price and transaction fees) from the disposal proceeds (such as the sale price or market value). The gain is then taxed at either 10% or 20%, depending on the individual's total income and gains for the tax year. The individual can also utilise their annual CGT allowance (£6,000 for 2024/25), which means that any gains below this threshold are tax-free. 

  • Income Tax (IT):
    This applies when an individual receives crypto assets as a form of income or reward. This may include situations where the individual: 
    • Mines crypto assets using their own equipment and resources. Mining is the process of validating transactions and creating new units of crypto assets on a network. The taxable income is calculated by deducting any allowable expenses (such as electricity and depreciation) from the market value of the mined crypto assets at the time of receipt. 
    • Stakes crypto assets on a network. Staking is the process of locking up some crypto assets on a network to participate in its governance and security, and receiving rewards for doing so. The taxable income is calculated by deducting any allowable costs (such as transaction fees) from the market value of the staked crypto assets and rewards at the time of receipt. - Receives crypto assets from their employer as a form of remuneration or benefit. The taxable income is calculated by using the market value of the crypto assets at the time of receipt. 
    • Receives crypto assets from an airdrop. An airdrop is when new units of crypto assets are distributed for free to existing or potential holders. The taxable income is calculated by using the market value of the airdropped crypto assets at the time of receipt. 
The income from crypto assets is then taxed at the individual's marginal rate of IT, which can range from 0% to 45%, depending on their total income for the tax year.

Tuesday, February 7, 2023

60-day Capital Gains Tax Reporting

As a property owner, it is important to be aware of the tax implications of disposing of your residential property.

The 60-day capital gains tax reporting requirement for residential property disposals is a crucial aspect of the tax system that all property owners should understand. It was implemented in 2020 (initially as a 30-day rule later relaxed to 60-day) and most people are not aware of this requirement.

In this article, we will provide a comprehensive overview of the 60-day capital gains tax reporting requirement and how it applies to residential property disposals. 

What is the 60-day Capital Gains Tax Reporting Requirement? 

The 60-day capital gains tax reporting requirement is a regulation that requires property owners to report the sale of any residential property situated in the UK to the HMRC within 60 days of the sale completion. They also need to pay the tax (or an estimate of that tax since in many instances the exact calculation can only be done after the tax is finished in April) at the end of this 60-Day period. This requirement applies to all individuals or trustees who sell UK residential property for a gain, regardless of the amount of the gain. If the sellers are non-UK residents they have the obligation to report even if they haven't made a gain and for every disposal of of UK land not just residential property -- which is not the case for UK residents. 

Tuesday, August 6, 2019

HMRC asking for records of Crypto Exchanges

With Bitcoin looking like it's here to stay, HM Revenue & Customs, is now pressuring crypto-currency exchanges to reveal customers' names and transaction histories, in a bid to claw back unpaid taxes, industry sources said. Letters requesting lists of customers and transaction data have landed on the doorsteps of at least three exchanges doing business in the U.K. – Coinbase, eToro and CEX.IO – in the last week or so, the sources said.

The move is following a pattern set by the U.S. Internal Revenue Service (IRS) and other governments. Last month, the IRS began sending warning letters to over 10,000 Americans who it says participated in virtual currency transactions but did not report them properly.

HMRC is looking to get up to 10 years worth of historical data but that might prove difficult to achieve. Still, even if the administration manages to go back 3 years, it would mean serious tax bills for those who thought trading virtual currencies was a tax free endeavour! HMRC published in 2018 a policy paper explaining the tax treatment of crypto-assets. As described in the paper, for most people, capital gains tax will be due on any gains they might have realised. But doing the calculation of the gain might prove more complex than with other securities. Indeed, transferring bitcoins in or out of an exchange is not a taxable event per se. And conversely, buying something with Bitcoin or receiving income in crypto-currency is a taxable event!

This is why it's crucial to keep records or all transactions and refrain from using crypto-currencies as a payment currency, at least until there is a de minimis exemption like with other currencies. As, even if your gains are below the annual allowance of £12,000 (for 2019/20), you still need to declare the sales if they total more than 4 times the annual allowance, i.e. £48,000. For people who don't already do a tax return, it means registering for Self Assessment. And if you are aware of gains that you have failed to declare in the past, it's a good idea to come forward and call HMRC to avoid steeper penalties.

Wednesday, June 19, 2019

Managing cash in your business

With interest rates at a record low in the UK, and with dividend tax rates now going up all to way to 38.1% for additional rate tax payers, many small businesses are reluctant to extract money from their limited company and are wondering how to make that cash left in the business produce significant income. Unfortunately there is not one single answer and each available options comes with its own benefits and drawbacks.

Savings Account

The simple answer is to open a savings account for the company. Most banks will allow for that but unfortunately the rates are ridiculously low. Major banks will typically pay between 0.5% and 1% depending on how long you are willing to lock your money for. And while it's possible to find slightly better rates at smaller banks or financial institutions, one has to be aware that the Financial Services Compensation Scheme (FSCS) that protects personal accounts up to £85,000 is not always available for Limited Companies.

Friday, November 16, 2018

Changes in off-plan treatment for PPR relief

Principal property relief (PPR) sometimes also called private residence relief (PRR) saw its usefulness seriously curtailed following a recent decision of the Upper Tribunal (UT) that overturned a First-tier Tribunal (FTT) ruling of 2017. The issue at stake is how to determine the date of acquisition of an off-plan property and the new ruling means that property owners should be very cautious when they purchase off-plan their principal residence.

PPR reduces any taxable capital gain on a property if the property has been used as a principal residence for part of its ownership. The case in question concerned the definition of ownership for the purpose of the relief. HMRC argued that the date of acquisition was the date when contracts were exchanged whereas the taxpayer argued it was the date when he was finally able to occupy the property, three years later. The FTT agreed with the taxpayer but HMRC appealed and the UT decided to side with HMRC.

The UT took the view that even though there was a period when the property was not even a dwelling, it was a chargeable asset nonetheless. As a matter of fact, the taxpayer had the right all along to sell the property and therefore there was no doubt that profit from such a sale would be taxable.

Now, not all is lost in case the delay in taking up occupation is less than a year (2 years at most in exceptional circumstances) thanks Extra Statutory Concession D49 that allows for relief in such a case. But caution should be exercised if you suspect there will be delays in construction as it will now most probably have negative tax implications for the homeowner upon resale.

Thursday, December 1, 2016

Saving tax with Deferral of Capital Gains

While Capital Gain Taxes have been slashed in the recent budget to 10% and 20% (from the 18% and 28% that it used to be), CGT has remained unchanged for residential property gains. While the tax rate for gains is lower than the one for income, amounts tend to be much bigger and far appart, making it harder to use allowances and low rate bands.

This is where deferral comes in handy. The Enterprise Investment Scheme (EIS) provides one of the mechanisms that allows such a deferral. Most people misunderstand that the general EIS conditions for income tax relief are much more restrictive than the conditions for CGT deferral. In particular the requirement that one owns less than 30% of the company or that one is connected to the business only applies to the income tax relief component of the EIS, not the CGT deferral. Same thing for the requirement that the investment be held 3 years or more: if you sell earlier the deferral just ends then (see HMRC note).