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Where Taxpayers and Advisers Meet

When to pay TAX on a Crypto to Crypto trasnactions

roundfroy
Posts:4
Joined:Mon Mar 18, 2024 12:10 pm
When to pay TAX on a Crypto to Crypto trasnactions

Postby roundfroy » Mon Mar 18, 2024 1:15 pm

Hi All,

I am desperately trying to find an answer to a question I have regarding the payment of TAX on crypto Assets. I have posted my question on the HMRC forum, but that was a week ago, and they have not answered.

I have been reading through the HMRC Crypto Assets manual (I literally stumbled across it) to try and understand how and when to pay tax on Crypto Asset gains. For some context, for the last 2 years, I have been submitting TAX returns and simply treating any conversion of Crypto to GBP as Income. I literally have an app on my phone that exchanges crypto to GBP. I keep a record (being the good and responsible citizen you would think) of every exchange I do (Crypto to GBP) and then just add this all up in a spreadsheet along with expenses which are basically exchange rate charges. After entering the info into the Self Assessment, I just pay the TAX due. I don't try to benefit from the Capital Gains allowance because I can't be bothered to prove it. I have never provided any info regarding on-chain activity, as this would simply be an impossible task due to the nature of what I do. My line of work (self employed) involves speculation mostly (not your regular type of speculation). And that involves doing hundreds of transactions in every possible type of smart contract you can think of. I will not go into the exact details of this (if you are into crypto, you will know what I'm talking about). Just to know that it's a lot of transactions. The TAX return form has a separate question regarding declaring assets. It does not have a single word on that form relating to Crypto Assets directly. Yet, YouTube and twitter is a wash with people and companies saying how the Inland Revenue are giving people a "last chance" to declare crypto assets. Despite nothing about this being mentioned at all on a Tax Return for individuals. Until now, I basically ignored all that because I took the view that as long as I just pay income tax on every exchange to GBP that I do, then all is well. And in fact, I'm paying too much TAX. I've declared everything right ? However, I am now wondering if this is not that simple. Let me explain.

According to, "HMRC Cryptocurrency Manual", an exchange between one crypto currency asset directly to another crypto currency asset, is treated as "Disposing of an asset". And therefor subject to capital gains. One would not see this as necessarily a problem, as one would assume that the TAX due on such a gain would only be due once the final assets was sold for GBP. The reason for my assumption is that HMRC do not regard Crypto Assets as legal tender. So my question is this.

Lets say I bought £1000 of Bitcoin in year 1 April 6th. The value of that Bitcoin increases 5x before the TAX year is complete. The BTC is now worth £5000. I exchange BTC for ETH which triggers a taxable event. But I don't sell the BTC for GBP (cash out).

1. Do I need to declare this on the TAX return and then pay TAX immediately ? Remember, I have NOT YET sold anything to GBP. So in essence, the gain is just a paper gain.

OR

2. I don't need to declare this on a TAX return in Year 1 because I decided to wait and see if the ETH increases in value. I decide instead (for example) to sell my ETH in year 2 to GBP (now worth £4000). I pay tax on the Taxable event that happened in year 1 (or should this now be year 2) plus another taxable event in year 2 (ETH to GBP). Or do I just pay TAX on the ETH to GBP event that happened in year 2 ?

If HMRC are asking people to declare crypto assets that have never been cashed out to GBP, then many people are going to become bankrupt. Or even end up in jail. Why is this ? Well, people who purchased BTC years ago made gains in the thousands. But only on-chain. They did a bunch of on-chain trading using decentralised exchanges between BTC, ETH, USDC, USDT, DAI and so on. They staked it. They un-staked it. They lent it, borrowed against it, received airdrops, received free NFT's. The list goes on and on. But never once, cashed out any of it to GBP. In the meantime, the markets dumped and those still holding many thousands in crypto on-chain now worth 90% less, are then asked to provide a list of all taxable events (on-chain). The HMRC then says "Hey you owe us x thousands due to all those taxable events". But of course, those people don't have it to give them because the assets are worth less. Oh, and also, children installed wallets in their web browsers that allowed them to play games where they get free tokens unknown to them, are now worth thousands. But there would of course be many many taxable events.

Please can somebody explain to me exactly what the situation is. Because from what I can see, crypto TAX software companies seem to be capitalising and cashing in on fear, and seem to be saying that people who hold crypto (not even selling it) should pay TAX. To say that an on-chain crypto to crypto transaction is taxable if frankly borderline theft by the HMRC. We pay and always did pay TAX on profits for legal tender. Not unrealised profits on-chain (speculative value). It is absolutely ridiculous (in my view) that the Inland Revenue selectively chose to TAX an asset which could simply be smarty coin, poo coin, dogecoin, or whatever, before any real world gain is made.

Jholm
Posts:377
Joined:Mon Mar 11, 2019 4:22 pm

Re: When to pay TAX on a Crypto to Crypto trasnactions

Postby Jholm » Tue Mar 19, 2024 2:12 pm

Whenever there is a disposal, capital gains tax arises. This is unlikely to be treated as income and would be more costly to you in this case.

A disposal occurs when:

- Selling crypto for cash
- Converting one coin to another (this is a disposal, then an acquisition of the new coin)
- Buying products/services using crypto.
- Gifting coins to somebody.

"If HMRC are asking people to declare crypto assets that have never been cashed out to GBP, then many people are going to become bankrupt" - kindly disagree. This is one of many instances where CGT can arise in the absence of GBP proceeds. I have many crypto clients who (now) fully understand their obligations and have no issues with the treatment.

People will more likely risk bankrupting themselves when they don't consider tax implications whatsoever and end up years behind with a HMRC enquiry.

On your numbers, it is very likely no CGT would be due anyway.

It only gets worse with NFTs, as there can be multiple tax events on one acquisition using Ethereum.

Happy to advise in more detail if you want to drop me a PM.

roundfroy
Posts:4
Joined:Mon Mar 18, 2024 12:10 pm

Re: When to pay TAX on a Crypto to Crypto trasnactions

Postby roundfroy » Tue Mar 19, 2024 5:50 pm

Thanks for taking the time to respond.

I think the average Jo in the UK understand the TAX implications of holding an Asset, selling it, and then paying TAX on the Profit. But only when selling that Asset to GBP. And it's pretty obvious. However, most people would not have the faintest idea that holding an Asset such as Bitcoin (which is not even considered currency or Legal Tender by the Inland Revenue), swapping it for another token and holding that token for several years (which could go to zero), only to discover that they owe HMRC TAX for several thousand pounds for a transaction for simply swapping one token for another. And yes they could go bankrupt if they had bought for example, a MEME coin costing £100 (I could name many of them) that had rocketed to half a million. It's not unusual for that to happen. Its happening right now on the Solana network. How about kids playing Games on their PC's ? Cryptoblades was a good example. The in game token did a 140x. It was literally a silly card game. Children would not have the faintest idea of TAX requirements. What HMRC have done here it totally unacceptable. Most people will comply with paying TAX on cashing to GBP. But it's not going to happen for on-chain transactions.

Just out of interest, what other Assets do you pay TAX on without selling them ?

bd6759
Posts:4296
Joined:Sat Feb 01, 2014 3:26 pm

Re: When to pay TAX on a Crypto to Crypto trasnactions

Postby bd6759 » Wed Mar 20, 2024 8:46 am

CGT is charged on disposals, not sales.

Gift an asset, you will be liable to CGT.

Exchange one asset for another asset, you’ll be liable to CGT.

Sell USD for Euro, you’ll be liable for CGT.

Sell Bitcoin for Ethereum, you’ll be liable for CGT

Or even sell and asset for GBP and immediately use those funds to buy another asset (which is akin to what you you are doing), you will be liable to CGT.

Crypto is not being treated any differently.

Jholm
Posts:377
Joined:Mon Mar 11, 2019 4:22 pm

Re: When to pay TAX on a Crypto to Crypto trasnactions

Postby Jholm » Wed Mar 20, 2024 1:42 pm

With all due respect, you are getting caught up on an understanding that taxation arises only on transactions that involve GBP. or another currency Capital gains tax is a tax on asset disposals, not income arising.

The problem is that HMRC will never agree that ignorance to the filing requirements equates to grounds to cancel tax liabilities arising. As a general rule, getting involved with any kind of financial trading without seeking tax advice is always a bad idea.

Appreciate there will be niche circumstances like you say but in your example and in practice, most people would sell if it reached half a million from an initial outlay of £100, therefore freeing up funds for CGT.

Nafen Kentk
Posts:1
Joined:Tue Feb 20, 2024 4:46 pm

Re: When to pay TAX on a Crypto to Crypto trasnactions

Postby Nafen Kentk » Wed Mar 20, 2024 6:18 pm

Hi everybody.
Do I understand correctly that if you sell and buy cryptocurrency for another cryptocurrency, then there will be no taxation?
And if you give or sell cryptocurrency for money, will it be taxable?

roundfroy
Posts:4
Joined:Mon Mar 18, 2024 12:10 pm

Re: When to pay TAX on a Crypto to Crypto trasnactions

Postby roundfroy » Thu Mar 21, 2024 1:28 am

Thanks for all your replies. Appreciated.

HMRC don't care about ignorance that's correct. They couldn't give a toss about anybody and are perfectly fine with shafting people who are ignorant. It's unfortunate that trading assets is a bad idea without seeking tax advice. Until people are told they should seek Tax advice, nobody would seek tax advice. I mean, why ? Seriously ? I can tell you now that most people who are heavily into the Crypto space, DO NOT cash out if they make half a million. Because it makes zero sense. Along with people in Government, HMRC have been spouting that crypto is gambling. And have been really spelling that out to people and trying to make them look like goons for using crypto. But now that it's going mainstream, apparently it's not gambling. How convenient since that Gambling wasn't subject to CGT (correct me if I"m wrong).

People who are savvy on Crypto, are heavily into ETH based Altcoins because there is a massive Ecosystem of projects that allow developers to be very clever with tokens and tokenomics. I mean in the sense that because ETH based tokens are programable, Layer 2 platforms designed for scaling and therefor low cost transactions, are allowing all sorts of categories such as identity, defi, privacy, AI, RWA, insurance, gaming, DEX, perpetuals, derivatives, depin, governance. The list goes on and on and on. HMRC are ignorant themselves as to what they are trying to make average people do. I mean, creating a wallet on a computer and connecting that wallet to a plethora of platforms has become child's play. No signing up processes or KYC anymore. That's history.
Everybody and their grandma can do it. Most web browsers have built in wallets by default now allowing it. And this being the case, hundreds of transactions get created and swapped repeatedly not necessarily to create a gain but simply to be able to use a particular platform. For example, a platform may require you to deposit USDC and not ETH to make trades. Thus triggering a supposed CGT event. Yet HMRC seem to think that taking a note of token exchanges ought to fit neatly into their expectations of tax obligations. How on earth is average Jo or even experts meant to dig through and decipher hundreds maybe thousands of onchain transactions on the Blockchain ? It's pure insanity. Life has moved on since dinosaur fiat transactions where you could sit there with a spreadsheet and make a note of all your transactions.

The biggest joke of all is that HMRC have no chance whatsoever of tracing the majority of so called CGT events on the Blockchain. Already there are thousands of tokens, hundreds of different blockchains, millions and millions of wallet addresses. Thousands of Nodes around the world to validate those transactions, and zero chance of shutting it down. This is just the start. Projects are developing privacy solutions. And now AI is being incorporated into projects on the Blockchains. Has HMRC any idea of how exponential this is gonna be ? They still think they are thing. People all around the world are being banked where previously governments, banks and their IMF buddies, blocked citizens from having the ability to exchange value unless meeting a certain critera. HMRC, governments, all of them are literally going to lose the ability to control the flow of value around the globe. And therefor the collection of TAX. The ignorance of those in the HMRC and Government is jaw dropping. But that's ok. I'm ok with that. Because younger generations get it. And they will use Crypto and think nothing whatsoever about TAX returns and form filling. The UK Government should get with it today or fall behind badly in favour of countries that embrace Crypto. Because there is a massive opportunity that's being missed. Income TAX should be scrapped altogether and instead collect TAX on goods at POS. The HMRC criminalises people for simply being ignorant to their form filling rules. I still can't believe that HMRC had the effing balls to include a crypto to crypto CGT event. Many people have done what they thought was correct in simply cashing out and paying TAX on the gains made. No person would think they had to pay TAX before cashing out. It's BS. I mentioned that HMRC criminalise people. That might be the wrong word. Perhaps I should say bury people. Can somebody in Government actually give an F please. Seriously, can somebody do the right thing for people. For once. Just once.

Thats my rant for the evening. I will now continue my research on Crypto friendly countries.

AGoodman
Posts:1767
Joined:Fri May 16, 2014 3:47 pm

Re: When to pay TAX on a Crypto to Crypto trasnactions

Postby AGoodman » Thu Mar 21, 2024 11:48 am

Hi everybody.
Do I understand correctly that if you sell and buy cryptocurrency for another cryptocurrency, then there will be no taxation?
And if you give or sell cryptocurrency for money, will it be taxable?
You understand wrongly. All of those situations are disposals for CGT. If you make a profit in excess of the annual exemption (currently £6k but dropping to £3k in a few weeks), you will likely have a liability to CGT.

Jholm
Posts:377
Joined:Mon Mar 11, 2019 4:22 pm

Re: When to pay TAX on a Crypto to Crypto trasnactions

Postby Jholm » Thu Mar 21, 2024 1:54 pm

"Until people are told they should seek Tax advice, nobody would seek tax advice" - totally disagree and the hundreds of crypto clients our firm has suggests this is not true. If people don't ask for advice and would prefer to totally disregard any potential considerations, then that's on them.

See the point about gambling but that was never going to be the outcome. It was a quick proposal, nothing more. It's no different to investing in regular shares (which are taxable under CGT rules), you might gain, you might lose.

"No person would think they had to pay TAX before cashing out" - people smart enough to get advice would. This is what you started to do but after not liking the answers, decided to rant instead.

roundfroy
Posts:4
Joined:Mon Mar 18, 2024 12:10 pm

Re: When to pay TAX on a Crypto to Crypto trasnactions

Postby roundfroy » Fri Mar 22, 2024 10:40 am

If a person's understanding of paying TAX is to pay TAX when then cash out of an assets (which is usually how it works). Then that's their understanding. That's it. Why would one then go and seek TAX advice for something that thought they were doing was correct to begin with? Should people go and do a course of TAX every year just in case the HMRC decide to implement some TAX regime ? People Are innocent. Ignorance is an excuse frankly. But the HMRC think differently because they collect tax. So it suits them to argue that ignorance is not an excuse. But actually it is. It really is. Ultimately, the people will decide. I remember back when prime minister Margaret thatcher tried to argue that the poll TAX was the right thing to do. She kept ignoring and ignoring what the people wanted. I remember many of my neighbours simply not paying it. Even by 16 year old mate didn't pay it. At the time my friend was not paying anything to live in his parents house. All of a sudden he was being expected to cough up TAX money. At the time I thought wow this is crazy, all these people are gonna get prosecuted. But incredibly, the people got their way. But there will of course always be people that will not accept this stance.


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