Cryptocurrencies like Bitcoin and Ethereum continue to attract attention, and understanding their tax implications is crucial. While no specific “crypto tax” exists in the UK, HMRC treats cryptocurrencies as property, subjecting their activities to either capital gains tax (CGT) or income tax (IT) under the existing framework. Here’s what you need to know for the 2024/2025 tax year.
1. Is There a Cryptocurrency Tax in the UK for 2024/2025?
The UK does not have a separate tax solely for cryptocurrencies. Instead, HMRC applies current tax rules. Crypto holders may face CGT on disposals or IT on earnings from activities like mining or staking. The tax you owe depends on how you acquire and use cryptocurrencies, as well as your total income.
2. Capital Gains Tax (CGT)
CGT applies when you sell, trade, spend, or gift crypto assets and your net gains exceed the annual exempt amount. For the 2024/2025 tax year, the capital gains allowance is £3,000.
- Tax Rates:
- Basic Rate Taxpayers: 10% on gains.
- Higher Rate Taxpayers: 20% on gains.
- Taxable Events: Selling crypto for fiat currency, trading one crypto for another, gifting crypto (except to a spouse or civil partner), or spending crypto are all disposals that may be subject to CGT. Certain DeFi transactions may also trigger a taxable event.
3. Income Tax (IT)
Income tax applies to crypto earnings from mining, staking, liquidity pools, or airdrops. This income is typically reported as miscellaneous income, and the applicable rate depends on your total income for the 2024/2025 tax year:
- Basic Rate (20%) for taxable income between £12,571 and £50,270.
- Higher Rate (40%) for income between £50,271 and £125,140.
- Additional Rate (45%) for income above £125,141.
If your income is below the personal allowance of £12,570, no income tax is due.
4. Reporting and Deadlines
- The UK tax year runs from 6 April 2024 to 5 April 2025.
- The Self-Assessment deadline for the 2024/2025 tax year is 31 January 2026.
- Report crypto capital gains on the Capital Gains Summary SA108 form. Report income from crypto in the “Other taxable income” section of the SA100 form. If your activity qualifies as financial trading, it should be reported on the Self-Employment pages.
5. Are Any Crypto Transactions Exempt from Tax?
Some transactions are not taxable, including:
- Buying crypto with fiat currency.
- Holding crypto without selling or otherwise disposing of it.
- Gifting crypto to a spouse or civil partner.
- Donating crypto to a registered charity.
- Transferring crypto between your own wallets or accounts.
6. Tips to Minimise Your Tax Bill for 2024/2025
- Use Your Allowances:
- Capital gains allowance: £3,000.
- Trading allowance: £1,000 for tax-free trading or miscellaneous income.
- Offset Losses: If you incur losses, they can be used to reduce your gains within the same tax year.
- Time Your Gains: If possible, realize gains in years when your overall income is lower, reducing your tax rate.
- Leverage Tax-Free Transfers: Gifting to a spouse or civil partner allows you to use their allowances and potentially reduce your tax liability.
- Consider Charitable Donations: Donating crypto to qualifying charities can provide relief on capital gains tax.
7. Staying Prepared for Tax Season
- Keep Accurate Records: Document every transaction, including purchase prices, sale proceeds, and dates.
- Use Crypto Tax Tools: Automated software can simplify calculations and ensure compliance.
- Seek Professional Advice: A qualified tax advisor can help you navigate complex scenarios and plan strategically for the future.
- Stay Informed: Tax laws evolve, so regularly review HMRC updates and guidance.
By following these guidelines for the 2024/2025 tax year, you can ensure compliance while exploring opportunities to legally reduce your crypto tax burden. However, we strongly recommend consulting with a qualified tax advisor or financial professional who can provide personalised advice tailored to your specific circumstances. If you require our assistance, please contact us at info@schoolgateaccounts.co.uk or +447511302280.
