How to Avoid Crypto Taxes in the UK (2023 Guide)

How is Crypto Taxed In The UK?

The HMRC’s manual on crypto-assets provides guidance on how cryptocurrencies are taxed in the UK. The section “Crypto61000” determines the tax treatment of crypto assets upon disposal, such as selling, gifting, exchanging, or using them to buy goods or services. The tax implications of your crypto depend on the nature of the transaction you have engaged in and may result in either Capital Gains Tax (CGT) or Income Tax.

Capital Gains Tax (CGT) applies to profits from selling an asset. Simply put, if you bought a digital asset and then sold it for a profit, your gain would be subject to CGT. It’s important to understand that Capital Gains Tax only applies to the profit made, not the total amount received from the sale. 

The Capital Gains Tax rate depends on your income as an individual. In brief, if your income is less than £50,270, you’ll be charged a 10% rate on your cryptocurrency gains, while if your income exceeds £50,270, you’ll be charged a 20% rate.

Income Tax applies to any profit earned from activities such as staking and mining. This differs from Capital Gains Tax, which applies to the sale or exchange of assets since crypto income tax is levied on the rewards received from these activities. 

A useful guideline for determining crypto income is whether the assets in your wallet or exchange account have increased in value since you first acquired them. If they have, the additional coins or assets in your wallet are regarded as ordinary income and taxed based on their value when you gained control of them.

How Much Tax Will I Pay On My Crypto UK

Determining the tax payable on your cryptocurrency earnings depends on your taxable income and corresponding tax bracket. In the United Kingdom, tax rates range from 20% to 45%, depending on your earnings. It’s essential to stay abreast of the latest regulations since tax brackets and personal allowance rates change each tax year to ensure that you are paying the correct amount of tax.

There is a standard allowance set at £12,570, meaning that income up to this amount is exempt from tax. However, for the 2023-2024 tax year, the capital gains tax allowance is expected to be reduced to only £6,000 for individuals. Also, if your taxable income exceeds £125,140, you are not entitled to this personal allowance. It is important to note that your income tax exemption also applies to your regular income from employment, whether obtained through PAYE or self-employment. The table below shows the tax rates applicable for each band (basic rate, higher rate, additional rate) based on your taxable income. 

To calculate the precise amount of tax you owe, you can use a crypto tax calculator. At Accointing, we offer a crypto tax calculator that utilizes an advanced algorithm to calculate the acquisition cost of each crypto transaction. This guarantees an accurate reflection and documentation of capital gains for tax purposes. We adhere to the same-day rule, the bed and breakfast rule, and the pooling method to determine capital gains and income tax, ensuring that you are paying the correct amount of tax. By utilizing a crypto tax calculator, you can precisely estimate your tax liability and avoid overpaying or underpaying tax on your cryptocurrency assets.

Crypto Taxable Events

In the United Kingdom, various activities involving crypto assets have been classified by HM Revenue and Customs (HMRC) as taxable events. This section will cover the different types of taxable events in the UK and their corresponding implications.

Buying And Selling Your Crypto

Buying and selling crypto assets, such as Bitcoin and Ethereum, is the most common way of acquiring and disposing of crypto. Whenever you sell your crypto assets at a profit, you will be subject to Capital Gains Tax. 

For example, if you bought Bitcoin for £5,000 and sold it for £10,000, you would have made a profit of £5,000 and will be liable to pay capital gains tax on this amount.

Getting Paid In Crypto

Another taxable event that crypto investors must be aware of is receiving crypto as a form of payment for goods or services. If you receive crypto as a wage or payment for goods, you will need to declare the value of the crypto at the time of receipt and include it as part of your taxable income.

For example, if you received £500 worth of Bitcoin for designing a website, you must declare £500 as part of your taxable income for the year. The amount of tax payable will depend on your income tax bracket.

Inheriting Crypto

The HMRC regards cryptocurrency as property when it comes to Inheritance Tax (IHT). If you inherit crypto assets, you must pay inheritance tax on the assets’ value. In the UK, inheritance tax is levied at 40% on the estate’s value above the £325,000 tax-free threshold. If the estate includes cryptocurrency, it will be subject to the same inheritance tax rules as any other asset. It’s worth noting that the executor of the estate has a responsibility to ensure that the estate’s tax liabilities are settled before distributing the assets to the beneficiaries.

Mining Crypto

Crypto mining can be either a hobby or a business. If it’s a hobby, any income you receive from mining must be declared separately on your tax return under “miscellaneous income” It is calculated based on the fair market value of the crypto in GBP at the time you receive it, and losses cannot be claimed. Additionally, when you sell or dispose of the crypto, you will be subject to Capital Gains Tax.

If mining is done as a business, the mining income will be added to trading profits and subjected to Income Tax. Any fees or rewards earned from mining or staking activities will also be added to your taxable income. You can deduct appropriate expenses from your income. When you dispose of the cryptocurrency, any gains in value from the time of acquisition will be added to the trading profits. You will also be required to pay National Insurance contributions for this transaction.

Staking Crypto

Staking involves users holding digital assets within a particular protocol or chain in exchange for rewards, usually given in the same cryptocurrency that’s being staked. To stake, users must transfer their digital assets to a staking protocol, which will then utilize them to validate transactions on the network. Users are then rewarded for their staking contributions, with the rewards being distributed back to them as more digital assets, which they can hold or sell on an exchange.

In terms of taxation, staking income is considered a means of earning money and is therefore subject to Income Tax. On the other hand, swapping or selling earned tokens is subject to Capital Gains Tax, and node rewards are also subject to Income Tax.

8 Ways To Reduce Your Crypto Tax Liability UK

Take profits in a low-income year

An effective way for crypto investors to minimize their tax liability is by selling their coins in years with lower income. The capital gain tax rates depend on the investor’s income bracket in a given year; hence, higher ordinary tax rates translate to higher capital gain rates. Investors can pay a lower tax rate on their gains by taking profits during a year with lower personal income. However, this strategy requires careful planning and consideration since capital gains from investments, including cryptocurrency, are regarded as taxable income and may move a taxpayer into a higher tax bracket if not appropriately managed. Therefore, before deciding to sell cryptocurrency assets, investors should thoroughly assess their current financial status and future income prospects.

Take advantage of tax-free thresholds

For the 2023/2024 tax year, the capital gains tax allowance is £12,300 (also knowns as Annual Exempt Amount), and the personal allowance for income tax is £12,570. This means you can earn up to these amounts before paying any tax. Taking advantage of these tax-free thresholds can reduce your tax liability on your crypto gains. However, if your earnings exceed £125,140, you will not receive a personal allowance, and if you earn over £100,000, your allowance will be reduced.

Harvest your crypto losses

Harvesting crypto losses is one effective way to reduce your crypto tax liability in the UK. This strategy involves selling your underperforming assets at a loss to offset any capital gains you may have incurred from selling profitable assets. For example, if you made a £10,000 gain on one investment and a £5,000 loss on another, you would only be taxed on the £5,000 net gain.

By realizing losses, you can reduce your taxable income, which can help lower your overall tax bill. However, it is essential to note that you should only sell your crypto assets at a loss if it aligns with your long-term investment strategy and not just to save on taxes.

Transfer Your Crypto Assets to Your Civil Partner or Spouse

Another way to reduce your crypto tax liability in the UK is to transfer your crypto assets to your civil partner or spouse. In the UK, married couples and civil partners are allowed to transfer assets between each other without incurring any tax liabilities. Transferring assets to your partner or spouse is a common strategy to maximize your tax allowances, and it can also apply to crypto assets. By transferring your crypto assets to your partner or spouse, you can utilize their tax-free allowances, basic rate tax bands, and lower tax rates to reduce your overall tax liability. 

Make a Pension Contribution

Another way to reduce your crypto tax liability in the UK is to make a pension contribution. By contributing to a pension plan, you can reduce your taxable income, lowering your tax liability. This is because the UK government provides tax relief on pension contributions. Contributing to a pension plan reduces your tax liability and helps you save for retirement. It’s important to note that pension contributions have annual and lifetime limits, so be sure to check the current limits before making any contributions.

Donation to a charitable organization

Another way to reduce your crypto tax liability in the UK is by donating to a charitable organization. Charitable donations made to UK-registered charities are eligible for tax relief, which means you can reduce your tax liability in the amount of your donation. You can do this through Gift Aid, which allows the charity to reclaim the basic rate tax on your donation from HM Revenue and Customs (HMRC).

You can choose to donate your crypto assets directly to a charity or use a platform that converts your crypto donations into fiat currency for the charity. Some platforms even offer the option to donate anonymously to protect your privacy. Not all charities are eligible for Gift Aid, so it is recommended to check if your chosen charity is registered before making a donation.

Relocate to a low-tax country

Moving to a country with a lower tax rate can minimize your tax liability and increase your net returns. Of course, relocating to a different country is a major decision that requires consideration. Before moving, you should consider factors such as job opportunities, the general cost of living, and quality of life. Additionally, you’ll need to establish residency in the new state, which requires more than simply changing your mailing address. If you go for this step, though, the potential tax savings can be significant.

Use crypto tax software

Using crypto tax software can save you significant time and effort, eliminating the need to calculate your taxes and keep track of every transaction manually. A well-built crypto tax toolcan also help you identify tax-saving opportunities and optimize your taxes, making sure you pay only what you owe and nothing more. Using Accointing, for example, you’re guaranteed to easily and legally lower your tax liability and stay on top of your crypto taxes.

How Can Accointing Help You Save Money On Crypto Taxes?

Accointing provides valuable benefits for investors seeking precise calculations of their crypto taxes. Here are some advantages of using Accointing:

User-friendly interface: Accointing offers an intuitive interface that simplifies the tracking of crypto transactions and the generation of accurate tax reports. It doesn’t require expertise in tax matters to navigate.

Integration with various exchanges and wallets: With over 400 rapid integrations covering exchanges, wallets, blockchains, and services like Binance, Coinbase, and Kraken, Accointing enables effortless connection of accounts and automated importation of transactions, eliminating the need for manual entry.

Comprehensive reports: As per the guidelines of the HMRC for cryptocurrency taxation, we create a comprehensive tax report that includes a detailed breakdown of all your transactions. We utilize the pooling method and adhere to the same-day rule and bed and breakfast rule to calculate capital gains and income tax.

Leading crypto portfolio tracking and insights: Take control of your crypto data with Accointing’s portfolio tracking and insights tool. The portfolio dashboard offers an overview of your transactions, providing information on your entire crypto portfolio. Real-time updates on buy and sell data, net profit, and total profit facilitate informed decision-making and keep you up-to-date with your investments.

Accurate Crypto Tax Calculator: Accointing employs an advanced algorithm to calculate the acquisition cost of each crypto transaction, ensuring precise reflection and documentation of capital gains and income for tax purposes.

Expert resources: Besides the “UK Crypto Tax: The Definitive Guide 2023” and “How to File Your Crypto Taxes – UK“, Accointing provides additional resources to assist users in navigating the complexities of crypto taxes.

Dedicated customer support: Accointing offers dedicated customer support to address any inquiries or concerns regarding the platform or crypto taxes. Prompt assistance is available through email, live chat, or the help centre.

The information contained in this guide, including any supplemental materials, is for general information purposes and does not constitute financial, investment, legal or tax advice. The present content is not intended as a thorough, in-depth analysis, nor a substitute for a formal opinion, nor is it sufficient to avoid tax-related penalties. Please consult your tax advisor.