Top Tips To Minimise Cryptoasset Tax Exposure

The cryptocurrency crash has been making headlines lately, with journalists calling it the end of crypto. However, as we’ve seen time and time again, following a crash there is usually a recovery. So many people are choosing to keep hold of their crypto assets or even joining the market for the first time. But the UK crypto tax clampdown is something to be aware of if you’re trading in cryptocurrency, here are out top tips to minimise your crypto asset tax.

 

Did you know we offer crypto asset / cryptocurrency accounting services? If you need a crypto currency accountant, take a look at our services here.

 

Yes, You Do Need To Pay Tax On Cryptocurrency Gains

Tax is applicable on any and all profits, regardless of where they came from. So if you’re trading in crypto assets you do need to submit annual self assessment tax returns and declare your gains (or losses – but we’ll come onto that later).

As most people will be trading in crypto as a hobby, and not as a professional, Capital Gains Tax (CGT) is likely to apply in most cases. So that’s the tax we’ll focus on minimising in these tips.

It is worth noting that if your gain is LESS than the CGT annual exemption of £12,300 in a financial year, you will not have to complete a Self Assessment Tax Return (unless you usually complete one for other reasons anyway). If your gain is OVER the CGT annual exemption, regardless of any losses that might bring it back under, you do need to complete a Self Assessment Tax Return.

 

Use Your CGT Allowance Wisely

In the current tax year (2022-23) you can make up to £12,300 profit from the sale of assets (which includes crypto) before Capital Gains Tax is applicable. So, keep track of your annual profits and plan your profits/gains to align with the tax year. For example, if you have made £12,000 in profit from your crypto trading, hold off on making any further sales or trades that might tip you over the CGT threshold until after April 6th so that the new profit aligns with the new tax year.

Similarly, if you check your profits and you’re a touch over the £12,300 tax-free limit then maybe consider selling some assets for a loss to bring you back under the threshold. An option which is most definitely open at the moment!

 

Use Your Spouse’s CGT Wisely Too

Did you know you can transfer assets like money and cryptocurrency to your spouse too? These must be a genuine gift and must not be transferred back, but if transferred you can use both of your CGT allowances and make up to £24,600 profit as a couple before CGT is applicable.

 

Use Your Losses Wisely

You can claim a loss from up to 4 years ago on your tax return. So if you’ve lost money in a financial year, remember to declare that too, it might come in handy in a future profit-heavy year.

 

Contribute To Your Pension

If your total gains for the financial year push you into the higher rate tax band (of 40%) you can pay some of the proceeds into your pension to reduce the CGT on the amount paid into your pension scheme from 20% to just 10. But remember the amount you can pay into your pension pot is limited and you might not be able to achieve a 10% CGT rate on all of the gain. It’s best to consult your accountant if this is a route you’d like to use to help reduce your CGT.

 

Crypto tax accounting is a tricky and relatively new area, so if you’re struggling and would like a professional cryptocurrency tax accountant to assist you, keeping you compliant and tax-efficient, then complete this form and we’ll be in touch soon.