Cryptocurrency

Investing and trading in cryptocurrency has grown significantly in recent years. Yet, many are still unclear about the tax treatment of profits from these activities. A common misconception is that cryptocurrency profits are tax-free, but this is far from the truth.

Given the substantial sums of money often involved, cryptocurrency investments have attracted the attention of HMRC. They are focused on ensuring businesses, investors, and traders pay the correct tax on their crypto assets. Anyone involved in this sector must manage their tax affairs properly and stay compliant with HMRC regulations to avoid penalties and fines.

What are Cryptoassets?

Cryptoassets are digital tokens with value or rights that are transferred, stored, or traded electronically. The main types of cryptoassets include:

• Exchange Tokens: Primarily used as a form of payment, these tokens, like Bitcoin, are also popular as investments, often increasing in value over time.

• Utility Tokens: These provide holders access to specific goods or services on a platform, typically via Distributed Ledger Technology (DLT). They can also be traded on exchanges or in peer-to-peer transactions.

• Security Tokens: Represent ownership rights or interests in a business, including profit entitlement or repayment of a specified sum.

• Stablecoins: Designed to reduce volatility, these are backed by a stable asset, such as a fiat currency (e.g., US dollars) or precious metals like gold.

Cryptoassets are typically recorded on a blockchain, a type of Distributed Ledger Technology (DLT). They may be subject to capital gains, income, or corporation tax.

It’s vital to understand your tax obligations regarding crypto activities and consult with a professional to ensure full compliance.