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08 December 2023

Declare Your Crypto Gains: Stay Compliant with UK Tax Laws

Don’t let ignorance cost you: Learn about the recent crypto tax crackdown in the UK and stay ahead of the game by reporting your crypto gains and avoiding penalties, says Paddy Harty…

Paddy Harty, Private Client Tax Partner at FPM discusses how to Stay Compliant with Crypto UK Tax Laws

Understanding the Recent Crypto Tax Crackdown

If you’ve been buying and selling crypto currencies without considering the tax implications, you may be in for a surprise. Recent developments in the UK tax system have led to a crackdown on undeclared crypto gains. The UK government estimates that up to 95% of the crypto community is not complying with tax obligations, highlighting the urgency for individuals to report their profits or losses.

The Crypto-Asset Reporting Framework (CARF)

The OECD‘s Crypto-Asset Reporting Framework (CARF), spearheaded by the UK, aims to tackle the billions of unpaid taxes stemming from crypto asset transactions worldwide. Under this new standard, tax authorities will require crypto platforms to share taxpayer information, enabling them to crack down on international tax evasion facilitated by crypto exchanges. Information exchange is set to commence in 2027.

Reporting Crypto Gains: Unveiling the Obligations

Many crypto traders remain unaware of the requirement to report profits earned from crypto trading. It’s important to note that transactions such as exchanging one form of crypto asset for another can trigger a capital gain. With the complexity and frequency of crypto transactions, it’s advantageous to rely on software platform providers who offer annual tax packs for traders.

Navigating Crypto Tax Obligations: Seek Professional Advice

If you suspect you have unreported crypto gains, seeking advice from a professional adviser is crucial. Depending on your trading activity, your gains are likely subject to capital gains tax (CGT), not income tax. CGT on crypto gains is taxed at a flat rate of 20% after accounting for the annual CGT exemption (£6,000 in 2022/23 tax year). However, each tax year may have a different CGT exemption, which will apply to your historic gains.

Matching Rules: Calculating Gains or Losses

It’s vital to understand the matching rules that determine which sales are linked to specific purchases for gain or loss calculation purposes. Disposals are first matched with assets acquired on the same day, then with assets acquired within the following 30 days, and finally with the average cost of any unmatched assets in the “pool.”

For more information on how to take control of your crypto taxes or for tax planning advice on cryptocurrency investments, please fill in the ‘Call Back’ form on the right of your screen or contact our Tax Team today.

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