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Where Taxpayers and Advisers Meet

Bitcoin windfall

unknown1
Posts:7
Joined:Thu Mar 01, 2018 9:28 pm
Re: Bitcoin windfall

Postby unknown1 » Tue Mar 06, 2018 9:52 pm

Indeed. Which means that perhaps the first answer you gave (it's very simple, CGT is due) needs revisiting. It's not very simple. It is of course impossible to have a controlled experiment, but I believe that if the outcome had been different, and bitcoin had done what the majority of people, including most esteemed economists even Nobel prize winners had suggested, i.e. go to zero, and NadJ came to this forum with a different question (i.e. "A few years ago I bet £25k on bitcoin - remember that? - and it all went tits up, can I claim capital losses tax relief?"), don't you think that a lot of people (arguably HMRC included) would have said no?

bd6759
Posts:4262
Joined:Sat Feb 01, 2014 3:26 pm

Re: Bitcoin windfall

Postby bd6759 » Wed Mar 07, 2018 1:27 am

If I am a wine merchant and sell a bottle of wine, I am charged to income tax.

If I buy a bottle of fine wine in the hope that it will increase in value, I will pay CGT on that increase. Likewise I will have made an allowable loss if doesn't increase in value.

Buying shares in a company could also be called a gamble. But it isn't. It's the acquistion of a chargeable asset, the disposal of which is caught by TCGA. Bitcoins, or any other asset, is no different. The value of any asset or investment can go up or down. The uncertainity does not make it gambling.

By all means sell your bitcoins and tell HMRC that the gains are not taxable. Let the courts determine the correct treatment.

unknown1
Posts:7
Joined:Thu Mar 01, 2018 9:28 pm

Re: Bitcoin windfall

Postby unknown1 » Wed Mar 07, 2018 11:26 pm

If you buy a bottle of fine wine and then it doesn't go up in value, in fact there's no market for it, so you can't sell it for anything, can you file a claim for loss relief?

Similarly, in the realm of virtual assets, if one had bought Second Life Linden dollars that at some point were trading for real dollars and then sold them at a loss (like this guy:
https://qz.com/72277/i-moved-all-my-second-life-linden-dollars-into-bitcoin/), do you think HMRC would allow a loss relief? If not, then should any gains be taxable? Shouldn't it be symmetrical?

It's hard to believe now with the benefit of hindsight, but back in the dark ages of 2011-12 bitcoin was thought to be just another fad that will go to zero just like Second Life currency. (It may well still go to zero btw)

jg418
Posts:2
Joined:Mon Mar 26, 2018 4:47 am

Re: Bitcoin windfall

Postby jg418 » Mon Mar 26, 2018 6:02 am

wasn't sure if i needed to start a new thread here, or just post into this one.. I understand that gains/losses on Bitcoin are subject to CGT. i would like to know the practicalities of how this is supposed to work, particularly if you want to 'get your stake back'

Consider the case of someone who purchases Bitcoin on a number of occasions over the period of the tax year, at various prices, and then within that tax year, makes some sales. Because of the sharp price rise in Bitcoin for a limited period of time, the sale price is lower than some of the purchases (ie , making a loss) and higher than some of the earlier purchases ( making a gain). Unless you can specify which BTC individually are the ones sold , it is not possible to work out a loss/gain.

ie. suppose I bought 1BTC at 1K and later bought 1 BTC at 9k (in the same tax year) I would have 2 BTC and would have spent 10K
If I then made a sale of 1BTC at 6K, have I sold the one that cost 1K, (making a gain of 5K) , or have I sold the one I bought at 9K ( making a loss of 3K?) ... and how would one declare this to HMRC?
OR for tax purposes, can I fairly say, in the tax year I have made purchases amounting to 10K and made sales amounting to 6K, so do not have a CGT liability?.... or in the case of 'getting your stake back' if I sold enough BTC to the value of 10K, ie. the total money spent, and left the rest in BTC to accrue value (or not , as the case may be )
would there be a CGT liability at all, as effectively, over the year, no gains have been realized? Furthermore, if no gains are realized, is there a requirement to make a declaration to HMRC at all, of a null result for CGT?
Of course my hypothetical question is a nice simplification.. two purchases, one sale. How about if there were multiple transactions?.... would the same be true if the asset in question were shares? Can anyone advise ?

cliffordpope
Posts:84
Joined:Thu Jun 24, 2010 8:45 am

Re: Bitcoin windfall

Postby cliffordpope » Mon Mar 26, 2018 9:37 am

(i.e. "A few years ago I bet £25k on bitcoin - remember that? - and it all went tits up, can I claim capital losses tax relief?"), don't you think that a lot of people (arguably HMRC included) would have said no?
Perhaps the fundamental difference between a gamble and an investment is whether your ticket has any monetary value were you to change your mind immediately after purchase?
Even if the shares had immediately crashed, they would have some value, and even a theoretical possibility of regaining value. But after your horse has lost, your money has gone and the race will never be re-run.

(Not quite true perhaps - you might have bet on the outcome of the EU referendum, and that one might just be re-run :) )

jg418
Posts:2
Joined:Mon Mar 26, 2018 4:47 am

Re: Bitcoin windfall

Postby jg418 » Mon Mar 26, 2018 11:00 am

Thanks for comments cliffordpope if they were in answer to my post, but I'm still none the wiser, as I wasn't querying the difference between a gamble and an investment. In a way the query is simpler than that, as I am asking about HOW to work out a CGT liability, based on accepting the idea that BTC is an investment, particularly if sales of BTC have been made, (in the same tax year that they have been bought).

If I bought a basket of shares, paid 30K, the shares doubled in value, and I sold 30k's worth of shares, retaining the growth still in shares , would I have to report a gain as I have taken out exactly what I put in.

bd6759
Posts:4262
Joined:Sat Feb 01, 2014 3:26 pm

Re: Bitcoin windfall

Postby bd6759 » Mon Mar 26, 2018 5:22 pm

I believe HMRC treats bitcoins as fungible This means the share pooling rules would apply. Essentially all the coins go in a single "basket" which adopts the value of the compounded costs.. In your case you would have 2 coins with a total cost of £10,000. If you sold one, the base price for CGT would be 1/2 * £10,000.

unknown1
Posts:7
Joined:Thu Mar 01, 2018 9:28 pm

Re: Bitcoin windfall

Postby unknown1 » Mon Apr 02, 2018 10:01 pm

(i.e. "A few years ago I bet £25k on bitcoin - remember that? - and it all went tits up, can I claim capital losses tax relief?"), don't you think that a lot of people (arguably HMRC included) would have said no?
Perhaps the fundamental difference between a gamble and an investment is whether your ticket has any monetary value were you to change your mind immediately after purchase?
Even if the shares had immediately crashed, they would have some value, and even a theoretical possibility of regaining value. But after your horse has lost, your money has gone and the race will never be re-run.

(Not quite true perhaps - you might have bet on the outcome of the EU referendum, and that one might just be re-run :) )
I'm not sure about that. On betfair for example, a bet has monetary value up until the final outcome of the event in question. It can be traded pretty much like shares. In some cases the event goes far out in the future, and one can trade a bet back and forth many times. I'm pretty sure it still qualifies as a bet though, not an investment.

The lines are blurred. The most speculative of investments even in traditional financial instruments are effectively gambles. For example stock options or penny stocks. Likewise, a bet on a pretty much guaranteed outcome can fundamentally resemble more of an investment. For example a few months ago one could bet on Putin being reelected and make about 5% in a bit less than six months, so more than 10% annualised, which is a better return than most traditional investments and arguably much safer! ;)

In my view HMRC doesn't want to issue clear guidance because they prefer to keep the option open to maximise tax revenue. If bitcoin goes to $500k, they will want to classify it as an investment and charge CGT on it. If it goes to zero they will want to prevent people claiming capital loss relief on it. So they wait.

AGoodman
Posts:1738
Joined:Fri May 16, 2014 3:47 pm

Re: Bitcoin windfall

Postby AGoodman » Tue Apr 03, 2018 3:10 pm

There is zero chance of bitcoin profits being treated as betting/gaming for CGT purposes.

There are judicial precedents defining betting (google Ellesmere v Wallace if bored) as well as definitions in the Gambling Act 2005 and Bitcoin just doesn't fit.

I'd agree with the fungible approach explained by bd6759. It is the only sensible solution.

robbob
Posts:3228
Joined:Wed Aug 06, 2008 4:01 pm

Re: Bitcoin windfall

Postby robbob » Tue Apr 03, 2018 5:04 pm

I'm not sure about that. On betfair for example, a bet has monetary value up until the final outcome of the event in question. It can be traded pretty much like shares. In some cases the event goes far out in the future, and one can trade a bet back and forth many times. I'm pretty sure it still qualifies as a bet though, not an investment.
It only has monetary value IF betfair will let you cash in your bet - their terms are clear on the exchange that they can suspend any market at any time so that you would be forced to then run the bet to the end of the market as appropriate. Practicably speaking this happens a lot with in play bets in that the market is often closed if it suits them.
For example a few months ago one could bet on Putin being reelected and make about 5% in a bit less than six months, so more than 10% annualised, which is a better return than most traditional investments and arguably much safer!
Its a bet simples the high probability of success doesn't alter that fact - one could be naive and presume he couldnt lose when the reality is the return is probably related to the statistical odds of him not being alive/well enough to win the election - i think for US presidents its roughly 9% who have been assassinated when in office.

question for unkown1

Can you find any tax experts /articles where they are giving the impression that capital gains tax would not apply for your circumstance?, if all the experts are saying capital gains tax applies why do you choose to ignore this body of evidence and revert to a hopeful bit of wishy/washiness that isn't really saying anything useful to support your argument.


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