Anyone well-versed in Crypto taxes?

Rony

Hi all,

I have a crypto portfolio and I have questions surrounding Income/Capital Gains Tax on crypto earns/stakes and mines (whereby you get interest at 3% - 100%+ on exchanges/defi)

Example:

A) Say I have 2 BTC at 3%pa staked. This will give me 0.06BTC pa. At £30,000 current price this is equivalent to £1,800 in a year (say 2022).I hold this 0.06 BTC and do not sell. (Let's assume that the spot rate at each point I received interest accumulates to the £1,800 for simplicity)

B ) Say in 2024 I decide to sell that 0.06BTC, however the value of BTC has dropped to £5,000 (so worth £300)

Questions:

1) I believe the interest element will fall under the Interest Income category as opposed to Capital Gains, which means I will be governed under the £1,000 interest threshold pa. Since I am £800 over I will potentially be liable for tax on this. My question is: If I don't sell, am I still liable for tax in the relevant tax year? I.e. I keep my 0.06 BTC for another few years, do I still need to file a self-assessment (assuming I don't already) and pay the tax on it?

2) If the answer to 1) is yes, then I pay tax on the £800 at 40% Income tax rate = £320 all paid in 2022. But then when it comes to 2024, I sell my BTC at £300, I would have paid interest at £320, meaning I made a loss of £20. I understand if this is correct it would work the other way too, if BTC appreciates in value I would have made a gain.

3) I would assume that the interest element will be out of scope of CGT once it has been brandished as Income? I.e. Say BTC rose to £90,000 in 2024, such that my 0.06BTC is now worth £5,400. I technically have made a gain of (£5,400-£1,800) = £3,600, but because I had already paid Income tax, I now have this tax free? I.e. is it possible to pay Income tax AND CGT on the same amount.

C) Some defi apps have compound interest. I.e. I put in 1 COINX and it accumulates compound every few seconds in interest. So in 5 seconds it will be 1.01 COINX etc. How would one calculate the market value of each compounding element as it is not discrete?


In reality I have a lot of Crypto amounts spread across several platforms, it's going to be a nightmare just keeping tack, let alone what rules to apply!

nitr02007

Seems like any gains from staking (or other rewards) are taxed as income in the tax year they are received.
If you keep the extra coin and sell when Bitcoin has risen then you are liable for CGT on the increase from when you received it.

Not trying to sell it or anything but I've got a Koinly account. Loads of other rules from HMRC which it takes into account automatically.

Rony

nitr02007 said:

Seems like any gains from staking (or other rewards) are taxed as income in the tax year they are received.
If you keep the extra coin and sell when Bitcoin has risen then you are liable for CGT on the increase from when you received it.

Not trying to sell it or anything but I've got a Koinly account. Loads of other rules from HMRC which it takes into account automatically.

So that means that I will be double taxed on one item? I will be paying income tax AND CGT on the interest I earn?

This also means that I could be paying out more money than I earn? Whereas traditional tax, you never pay more than what you earn.

I'll also look into Koinly thanks

Jeremy535897

The best place to look is here:
https://www.gov.uk/hmrc-internal-manuals/cryptoassets-manual

Rony

Jeremy535897 said:

The best place to look is here:
https://www.gov.uk/hmrc-internal-manuals/cryptoassets-manual

I had read that already before posting. I couldn't find anything specific to my questions.

I guess I'd probably best call HMRC to clarify. However I doubt the person on the other end will help much considering how new and niche this area is

Jeremy535897

Good luck with that. As a general rule, if you receive interest in the form of a capital asset, you pay income tax on the interest, but that then counts as the capital gains tax base cost for when you sell (always remembering that the whole base cost of one cryptocurrency is pooled according to the share pooling rules).