The information below is provided for general informational purposes and should not be considered tax advice. Please consult a tax advisor to determine your personal tax obligations that result from your activities on the Gemini exchange, including dispositions.
HMRC has issued a manual to communicate their view on the appropriate tax treatment of cryptoassets, based on the law as it stands on the date of publication. The cryptoasset manual can be found here. It is advised that investors review the manual thoroughly with their tax advisor to fully understand their personal tax obligations.
Cryptoassets are often owned as a personal investment for capital appreciation (increase in value). In the UK, individuals may be liable to pay Capital Gains Tax (“CGT”) when cryptoassets are disposed of. Generally, a disposal occurs when:
- A sale of cryptoassets is made
- An exchange of tokens for a different cryptoasset takes place
- cryptoassets are used to pay for goods or services
There is no Capital Gains Tax if cryptoassets are not disposed of.
If disposals are made, you need to determine if you have a gain. The method of calculating a gain or loss is usually the difference between the value of cryptoassets at the time of purchase versus when they are disposed of. Cryptoassets are grouped into a ‘pool’ by each asset (bitcoin, Ether, etc.).
For example, an investor who bought a single bitcoin for £10,000, and a second bitcoin for £40,000, would “pool” the two bitcoins for a total cost basis of £50,000. Each individual token within that pool is valued at £25,000. If an individual subsequently sells one of the bitcoins for £40,000, a gain of £15,000 (40,000-25,000) is realized (without taking into account additional allowable costs).
Be aware that there is a 30-day limitation for the pool method. Tokens cannot be grouped into pools if you buy them on the same day or within 30 days of selling tokens of the same type. In general, if you buy new tokens of the same type within 30 days of selling your old ones, those tokens are deemed disposed of first before including the disposal of any pooled tokens purchased before the day of sale.
When calculating gains and losses, certain “allowable costs” may be deducted, including the original amount paid for the asset, as well as transaction fees and other associated costs incurred in selling the asset, for example, advertising, legal fees, valuations, etc.
Cryptoassets are considered disposed of when they are sold for fiat currency (GBP/EUR/USD), exchanged for other cryptoassets, moved into a lending program, used as payment for goods or services, or gifted to another person (that is not the owner’s spouse).
If an asset is disposed of in a transaction that creates a loss (i.e., the trade expenses are more than the trade income), that loss can generally be used to offset income or capital gains of the same year or an earlier year. Not all losses may be claimed and sometimes the amount of loss that is able to be claimed is restricted or limited.
You’ll need to report and pay Capital Gains Tax if your taxable gains are above your Capital Gains Tax allowance. You do not need to pay tax if your total gains are under. However, you still need to report your gains if the total amount you sold your crypto for is more than four times the allowance or if you are registered for Self Assessment.
Additionally, individuals will be liable to pay Income Tax and National Insurance contributions on cryptoassets that they receive from: (1) their employer as a form of non-cash payment and (2) mining, transaction confirmation (3) from certain airdrops. There may be cases where the individual is running a business that is carrying on a financial trade in cryptoassets and will therefore have taxable trading profits. In such cases Income Tax would take priority over the Capital Gains Tax rules.
To prepare your UK tax filing obligations you may be required to reference your transaction data. You can access your transaction history Excel file by following the steps below:
1) Navigate to the settings tab in your account, found here
2) Click the Statements and taxes option.
3) Select the Statements option. You will find monthly statements listed. Click the download button and your transaction history will download onto your device.