UK government published a Policy paper on “Cryptoassets for individuals” yesterday.
The report contains Her Majesty’s Revenue & Customs department’s stance on Cryptoassets and the taxes applicable on them.
The report defines Cryptoassets as, “Cryptoassets (cryptocurrency ) are cryptographically secured digital representations of value or contractual rights that can be:
HMRC does not consider cryptoassets to be currency or money.”
Taxes applicable will be based on the nature of transactions and type of cryptocurrency used. For instance if you are trading in Bit coins, you need to pay Capital Gains Tax.
If you receive crypto currency as payment from your employer or an airdrop, you need to pay Income tax.
Here’s an excerpt from the report explaining the levy of capital tax,
” Capital Gains Tax: HMRC would expect that buying and selling of cryptoassets by an individual will normally amount to investment activity (rather than a trade of dealing in cryptoassets). In such cases, if an individual invests in cryptoassets they will typically have to pay Capital Gains Tax on any gains they realise.
Cryptoassets are digital and therefore intangible, but count as a ‘chargeable asset’ for Capital Gains Tax if they’re both:
▪capable of being owned
▪have a value that can be realised.
What constitutes a ‘disposal’:
Individuals need to calculate their gain or loss when they dispose of their cryptoassets to find out whether they need to pay Capital Gains Tax. A ‘disposal’ is a broad concept and includes:
selling cryptoassets for money exchanging cryptoassets for a different type of cryptoasset using cryptoassets to pay for goods or services giving away cryptoassets to another person
If cryptoassets are given away to another person who is not a spouse or civil partner, the individual must work out the pound sterling value of what has been given away. For Capital Gains Tax purposes the individual is treated as having received that amount of pound sterling even if they did not actually receive anything.”
The complete report is available on GOV.UK