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Crypto trading is a fully legal and highly-promising kind of business in the United Kingdom. The local authorities put a lot of effort into monitoring and regulating it. However, despite detailed and transparent rules, there are many questions concerning its taxation. So, we suppose you will get interested in detailed explanations provided by our experts.
The main point to take away is that, in general, you must pay taxes on your rewards from crypto investments and speculations. Yet, there are certain exceptions and nuances.
One must note that, on a global scale, the HRMC was among the first authorities to introduce the rules on this issue. As of now, only a few DeFi applications are not regulated by crypto tax UK legislation, yet, this situation is likely to change soon.
In basic terms, in this country, Bitcoin and other coins are not classified as currencies, like pounds, instead, they are treated as capital assets, like stocks.
As a result, if you earn such coins, they are subject to income tax. Such cases include payments in crypto, mining, rewards from proof-of-stake payment models, and airdrops. But, when you dispose of them, i.e. you sell them for fiat currency, exchange for another crypto, gift them, or use them to cover your bills, for example, at some stores, you are charged capital gains tax on your profits.
Meanwhile, you can make use of multiple breaks. When you try to determine your Income Tax band and calculate your taxable income volume, you must take away the tax-free maximum along with other reliefs or discounts. For example, if you received £55,000 of income within the latest year, you can safely deduct £12,570. Consequently, you are supposed to pay taxes for £42,430 only. More to the point, you do not qualify for the Higher Rate (40%), instead, you are charged the Basic Rate of 20%. But you cannot count on such a discount if you get more than £125,140 within a year.
Also, there is a trading and property allowance, which allows you to avoid taxation for £1000 per year. If you earn from both of the activities specified, you are provided with two discounts.
Speaking about capital gains, the non-taxable limit is £12,300. So, if your annual gains do not exceed this point, you are not charged taxes at all, otherwise ― you can take advantage of a hefty discount.
In addition, one must mention tax-free operations with crypto:
- buying it with British pounds;
- investing and holding it;
- transactions between your wallets;
- donations to charities;
- gifts to spouses.
To sum up, paying taxes on your crypto gains and income is a must. So, you must clear out this aspect within the first financial year of your career. Remember that, if you ignore your taxation responsibilities, that will inevitably lead to legal problems.