Bitcoin windfall

[NadJ]

I invested £25k into Bitcoin 3 years ago and now its worth 10x that. I'm not a trader and have two other careers (2 part time jobs) and gross about £120k a year in total. I am struggling to find a simple answer to this, what is my tax liability on the £250k? Consider that 3 years ago it was considered a gamble/a 'bit of a punt' to buy Bitcoin and not something you trade in per say.

Thanks

[bd6759]

The answer is very simple. The gain will be chargeable to capital gains tax.

[NadJ]

Out of interest, If I gambled £25k today at the bookies, would the winnings be liable for cgt tomorrow?

[AnthonyR]

As per bd6759's comment, HMRC consider bitcoins as a taxable asset in the same way that shares would be. They don't consider it as a currency as such, so it doesn't benefit from the same tax free growth on exchange differences. Equally they don't consider it as a gamble as you have an asset which will increase/decrease. Incidentally, if you lost money on bitcoins it'd be relivable against other capital gains.

HMRC's views on it:

https://www.gov.uk/government/publicati ... currencies

[bd6759]

Out of interest, If I gambled £25k today at the bookies, would the winnings be liable for cgt tomorrow?

No, but if you gambled £25K by puchasing shares in a start up company, or gambled £25K on the purchase on some useless land that might become important to a future development, you would be taxed on any gain.

[unknown1]

I was going to start a new thread but then saw this and decided to bump/hijack it instead

In HMRC's Policy paper (Revenue and Customs Brief 9 (2014): Bitcoin and other cryptocurrencies, published 3 March 2014) that AnthonyR linked above it is mentioned:

CT, IT and CGT treatment of Bitcoin and similar cryptocurrencies
As with any other activity, whether the treatment of income received from, and charges made in connection with, activities involving Bitcoin and other similar cryptocurrencies will be subject to CT, IT or CGT depends on the activities and the parties involved.
Whether any profit or gain is chargeable or any loss is allowable will be looked at on a case-by-case basis taking into account the specific facts. Each case will be considered on the basis of its own individual facts and circumstances. The relevant legislation and case law will be applied to determine the correct tax treatment. Therefore, depending on the facts, a transaction may be so highly speculative that it is not taxable or any losses relievable.. For example gambling or betting wins are not taxable and gambling losses cannot be offset against other taxable profits.

The mention of consideration of individual facts and circumstances to determing whether a transaction is highly speculative makes it less than clear-cut in my view.

I tend to agree with the analysis here: https://www.enterprisetax.co.uk/tax-on-bitcoin/ in that HMRC want to be purposefully vague in order to avoid massive allowable capital losses if the tide turns. It is quite likely that already there are more people with realised or unrealised losses from bitcoin/crypto trading than there are winners and crucially a larger total amount of losses than the total amount of gains.

Leaving the conspiracy theory of tax maximisation strategy aside though, taking the guidance at face value and looking at the facts, what would one need to see in order to justify that it was a highly speculative investment so as to not be taxable or any losses relievable? You must be able to give certain examples or perhaps some criteria, otherwise what's the point of this note in the guidance?

Would any of the below criteria be relevant?
- monetary amount invested as a percentage of one's income or assets
- amount of active involvement (buy once and forget it versus active trading)
- length of holding (a quick trade for a week or two versus holding for months/years)
- physical holding in personal wallet versus holding in an exchange
- transacting in an exchange versus a CFD provider
- transacting in bitcoins directly versus futures or bitcoin funds (such as the US based GBTC)
- time of the transaction (was it more speculative when it first came out versus now that is more mainstream for instance)

I would like to ask opinions for my own circumstances as I was thinking of writing to HMRC about it, but before we go there, I would like to trigger a more general discussion in hope of getting a more objective answer.

Again, if HMRC says in their guidance that it depends on the individual circumstances, then it's not clear-cut that bitcoin transactions are subject to investments, and even if one is not able to articulate concrete rules that make a transaction investment versus gambling, at least there can be some examples that clearly fit either of the two extremes (admittedly leaving a lot of ambiguous cases for which HMRC's direct opinion may be required).

[bd6759]

Here's one for you to consider.

I sold a bottle of wine yesterday. Am I liable to tax?

[robbob]

unkown1

The mention of consideration of individual facts and circumstances to determining whether a transaction is highly speculative makes it less than clear-cut in my view.

It's normal hmrc policy to be wishy washy on the wording, this may lead one to believe they are saying something they are not really saying if you don't fully understand the specific principles involved.

Out of interest, If I gambled £25k today at the bookies, would the winnings be liable for cgt tomorrow?

Nope gambling winnings are tax free

Similarly had you taken out a spreadbet on bitcoin where you are paying a margin to the provider and you lose money on the bet if the price goes the wrong way then you are also gambling.
So had you gambled via a srpeadbet rather than bought your gains would have been tax free.

You haven't gambled though you have bought an an asset that has a reasonably known value, on the balance of probabilities this may go up or down in price but its reasonably established principle that an outright purchase like this of something you own will have CGT levied unless there is decent case law or reasoned argument to suggest otherwise.
However if you could successfully challenge hmrc on the point that bitcoin is such a gamble that its treatment is not like any other risky investment you could make ,you could perhaps win your case and perhaps set a new precedent - i can't see though why bitcoin should be different to all other similar risky investments.

Note you yourself have said that you made an investment.

{quote]I invested £25k into Bitcoin 3 years ago[/quote]

Note if you disagree then you will also be at odds with the experts (presumably paid for their expert opinion rather than the rather variable advise sometimes given here ) over at taxation.co.uk

https://www.taxation.co.uk/Articles/2015/03/10/332784/cryptic-currency

Capital gains tax
Gains or losses on bitcoin or other cryptocurrencies are chargeable or allowable for capital gains tax, if they accrue to an individual and are not covered by trading profit rules.

This advise is reasonably black and white and if there was any "outs" that they had thought you might have the "gambling option" it would have been attached to that line IMHO.

[unknown1]

Note if you disagree then you will also be at odds with the experts (presumably paid for their expert opinion rather than the rather variable advise sometimes given here ) over at taxation.co.uk

https://www.taxation.co.uk/Articles/2015/03/10/332784/cryptic-currency

Capital gains tax
Gains or losses on bitcoin or other cryptocurrencies are chargeable or allowable for capital gains tax, if they accrue to an individual and are not covered by trading profit rules.

This advise is reasonably black and white and if there was any "outs" that they had thought you might have the "gambling option" it would have been attached to that line IMHO.

From the link you posted, at the end of the paragraph you quoted:

If a transaction is considered speculative, it may not be liable to tax at all.

So, we are back to square one, aren't we?

[bd6759]

Yes. The nature of tax will depend on the circumstances of the person.

Consider the question I posed: "I sold a bottle of wine yesterday. Am I liable to tax?"

The answer is -- it all depends on my circumstances. Why should bitcoin be any different?