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One of the hot topics at the moment is how Cryptocurrency trading will be treated from a tax perspective and it is important that anyone who is investing into cryptocurrency considers the tax implication and the vehicle being used to hold the investments.

The taxation of profits from buying and selling cryptocurrencies will fall into one of the the following categories.

  • Income tax
  • Corporation tax
  • Capital Gains tax

In deciding which one, HMRC have said this must be considered on a case by case basis. For an individual to be subject to Income Tax (or a company to be subject to Corporation Tax) on cryptocurrency gains, there needs to be evidence of a trading business. To decide if this is the case, HMRC say that badges of trade must be present.

Not all of these “badges” need to be present in order for a trade to exist. It’s only when you look at all the badges that are present in the context of the activity that you can decide if you are trading in cryptocurrencies or investing in them.

The biggest potential risk is that some people will make vast amounts of profit from cryptocurrencies, HMRC deem them to be trading, and end up being hit with the top rate of income tax on their earnings (currently 45% plus 2% National Insurance). At the highest rate of tax, individuals also lose their tax free personal allowance.

For this reason, it’s worth looking at your activity now and your future plans to  assessing the likelihood of being deemed to be trading, and if you are, consider moving your cryptocurrencies into a Limited Company where lower overall rates of tax apply. If the profits are in the company, some effective tax planning can make sure you hold on to more of your gains.

For those that are investing, these gains will be subject to Capital Gains Tax (CGT). Every individual has an annual exemption of £11,300 (for 2017/18 tax year). Any gains over and above that amount will be taxed at either 10% or 20% depending on your other income in that same tax year.

In most circumstances CGT will be the main tax applicable to gains from cryptocurrency but it will really depend on each individuals own circumstances.

If you want any advice on the above then feel free to give us a call.

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