Remember to report cryptoasset gains on tax returns

The Association of Taxation Technicians (ATT) and Chartered Institute of Taxation (CIOT) are reminding cryptoasset investors to include their gains (and losses) in their 2021/22 tax returns as the 31 January deadline looms.

Cryptoassets, such as Ethereum, Bitcoin and non-fungible tokens, are as much subject to income tax and capital gains tax (CGT) as any other chargeable asset. When an investor realises the value of a cryptoasset for tax purposes and makes a profit over a certain amount (currently £12,300), they are obliged to pay CGT by the 31 January following the end of the relevant tax year. Gains made in 2021/22 therefore need to be reported by 31 January 2023 with all necessary tax paid. Likewise, if a loss has been realised, this can only be offset against other gains from the same or future years if they are reported to HMRC. Those who are trading in cryptoassets, or receive them for services they carry out, will be subject to income tax on their profits. Please see our earlier Bulletin.

According to the ATT and CIOT, HMRC has identified that there is a risk of underreported gains in this area and have a special focus on crypto compliance.

The concern of the ATT and CIOT is that many investors simply won’t be aware of these obligations or of how wide the range of circumstances are in which gains can be ‘realised’ for tax purposes. The phased reduction of the CGT annual exemption from £12,300 to £6,000 on 6 April 2023 and to £3,000 from 6 April 2024 will only make the issue more acute.

Gary Ashford, chair of the joint ATT/CIOT Crypto Assets Working Group, has warned that not only can cryptocurrency investments trigger CGT liabilities that are not obvious to the investor, but tax can be payable even where the investor does not think thar their crypto investments have been profitable. Selling, lending or ‘staking’ cryptoassets – or potentially even just transferring assets between crypto sites and portfolios – will usually trigger a disposal in the tax year in question, even if no cash is taken out and even if the portfolio now shows that there would be losses if all investments were cashed now.

According to Mr Ashford, many low-income taxpayers will have invested in these assets but barely a third will be professionally represented or have a good understanding of CGT, nearly half having not seen any information/guidance on the subject – 84% of cryptoasset owners won’t have sought tax advice.

In addition, people resident in the UK but with a long-term ‘domicile’ elsewhere (non-UK doms) who are currently claiming the remittance basis may not realise that HMRC regard any crypto investments held by UK residents as UK situs assets, generating income and gains fully taxable in the UK. Also, if they use offshore income and gains to acquire a crypto portfolio they could well be making remittances and thus triggering UK tax charges at their highest rate of tax. Cryptoassets are chargeable for inheritance tax purposes too, so that is another aspect non-UK doms need to be aware of.

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