Declare crypto on Self-Assessment tax return?

1404

eskbanker said:

1404 said:

Is converting to cash within Coinbase (and not taking the cash out of Coinbase) something which will be relevant to CGT?

Just to pick up on this question, yes, 'converting to cash' is what would generally be known as 'selling', and is therefore very much an asset disposal for CGT purposes.

Yes, absolutely. It would count towards the £50k annually which if exceeded needs to be included on the tax return (hope I've got that right).

But what I meant is: if I convert £10k to cash and withdraw it to my bank account then I have to actually pay CGT on any profit over £3k. Paying CGT becomes a reality. But what if I leave the cash in my Coinbase account ready to buy more crypto? Similar to having cash sitting in a S&S ISA. My assumption is that the tax man wouldn't be interested in it unless it's withdrawn from Coinbase into a bank account?

eskbanker

1404 said:

eskbanker said:

1404 said:

Is converting to cash within Coinbase (and not taking the cash out of Coinbase) something which will be relevant to CGT?

Just to pick up on this question, yes, 'converting to cash' is what would generally be known as 'selling', and is therefore very much an asset disposal for CGT purposes.

Yes, absolutely. It would count towards the £50k annually which if exceeded needs to be included on the tax return (hope I've got that right).

But what I meant is: if I convert £10k to cash and withdraw it to my bank account then I have to actually pay CGT on any profit over £3k. Paying CGT becomes a reality. But what if I leave the cash in my Coinbase account ready to buy more crypto? Similar to having cash sitting in a S&S ISA. My assumption is that the tax man wouldn't be interested in it unless it's withdrawn from Coinbase into a bank account?

No!

I thought this had already been covered several times already earlier in the thread - if you sell some crypto then that is a disposal for CGT calculation purposes regardless of what you choose to do with the proceeds, just like selling other investments on a platform - any withdrawal of such proceeds from the platform/exchange is irrelevant, it's the actual transaction of selling the asset that counts.

So the corrected version is: "if I convert £10k to cash and withdraw it to my bank account then I have to actually pay CGT on any profit over £3k", or to be more accurate the gains from that transaction contribute to your CGT liability, together with all other disposals in the same tax year, and the amount actually payable takes into account the annual £3K exemption and any losses carried forward from previous years.

1404

eskbanker said:

1404 said:

eskbanker said:

1404 said:

Is converting to cash within Coinbase (and not taking the cash out of Coinbase) something which will be relevant to CGT?

Just to pick up on this question, yes, 'converting to cash' is what would generally be known as 'selling', and is therefore very much an asset disposal for CGT purposes.

Yes, absolutely. It would count towards the £50k annually which if exceeded needs to be included on the tax return (hope I've got that right).

But what I meant is: if I convert £10k to cash and withdraw it to my bank account then I have to actually pay CGT on any profit over £3k. Paying CGT becomes a reality. But what if I leave the cash in my Coinbase account ready to buy more crypto? Similar to having cash sitting in a S&S ISA. My assumption is that the tax man wouldn't be interested in it unless it's withdrawn from Coinbase into a bank account?

No!

I thought this had already been covered several times already earlier in the thread - if you sell some crypto then that is a disposal for CGT calculation purposes regardless of what you choose to do with the proceeds, just like selling other investments on a platform - any withdrawal of such proceeds from the platform/exchange is irrelevant, it's the actual transaction of selling the asset that counts.

So the corrected version is: "if I convert £10k to cash and withdraw it to my bank account then I have to actually pay CGT on any profit over £3k", or to be more accurate the gains from that transaction contribute to your CGT liability, together with all other disposals in the same tax year, and the amount actually payable takes into account the annual £3K exemption and any losses carried forward from previous years.

Ok, thanks for that. This is the part I struggle to understand: if you have XRP which has doubled in value then you pay no tax. But if you convert it to XLM then you have to pay the tax on the appreciated portion of the investment. It just doesn't make sense to me that that is the rule. But I think I've finally got it.


It looks like my only option right now is to take £3k cash tomorrow (my annual CGT threshold).  And then do the same in April (assuming my crypto hasn't crashed by then). 

I would like to convert all of it to a new cryptocurrency in order to establish a clear base cost going forward for tax purposes but I'm going to have to see if I can actually do that without triggering CGT liabilities.

1404

CGT wouldn't be that much anyway, would it?

I find it impossible to get my base cost for my crypto. So I've no idea what I'd do on that score. But let's assume that myself and HMRC agree my crypto has doubled. 

I want £10k of it cashed. Minus the £5k that I bought the crypto for = £5k liable for CGT. Minus £3k CGT allowance = £2k liable for tax @ 20% = £400 tax on the £10k sale. 

It's annoying and expensive having to fork out that £400, but not the end of the world. 


Edit: also you'd have to factor in any crypto trades made in the tax year. In the 24/25 tax year I think I've made £450 of trades, so I've used that portion of my £3k CGT already, apparently.

1404

For example:

Someone has £5000 of ETH and it goes up in value to £10. They want to exchange it to BTC. So they have have to pay HMRC £400 for that exchange as it's a "sale" of crypto.

So they now have £9,600 of BTC. And the following month BTC crashes and the holding is now worth £2000.

So you this person paid tax on unrealized gains which were then wiped out. 

People are actually doing this? 

wmb194

1404 said:

For example:

Someone has £5000 of ETH and it goes up in value to £10. They want to exchange it to BTC. So they have have to pay HMRC £400 for that exchange as it's a "sale" of crypto.

So they now have £9,600 of BTC. And the following month BTC crashes and the holding is now worth £2000.

So you this person paid tax on unrealized gains which were then wiped out. 

People are actually doing this? 

Yup, this is how it works and they weren’t unrealised gains, they were realised.

The nomenclature you’re using might be part of the problem: you’re not “exchanging,” you’re selling one security and purchasing another. The sale is where you crystallise a gain or loss for tax purposes.

phlebas192

1404 said:

For example:

Someone has £5000 of ETH and it goes up in value to £10. They want to exchange it to BTC. So they have have to pay HMRC £400 for that exchange as it's a "sale" of crypto.

So they now have £9,600 of BTC. And the following month BTC crashes and the holding is now worth £2000.

So you this person paid tax on unrealized gains which were then wiped out. 

People are actually doing this? 

Yes, they are. Or at least they should be if they don't want to risk being hit by penalties in the future.

What you need to get your head around is that CGT is triggered by disposing of an asset. That could be a sale for cash, it could be gifting it to someone else (other than a spouse) or it could be swapping it for something else. They are all disposals so are liable for CGT.

I also take issue with you describing the ETH gain as "unrealised". As soon as it was disposed of the gain was indeed realised. What subsequently happens to the proceeds is immaterial.

eskbanker

1404 said:

Ok, thanks for that. This is the part I struggle to understand: if you have XRP which has doubled in value then you pay no tax. But if you convert it to XLM then you have to pay the tax on the appreciated portion of the investment. It just doesn't make sense to me that that is the rule. But I think I've finally got it.

As mentioned on several occasions, CGT liabilities only come into play when you dispose of an asset, so if you don't sell/trade/exchange them then you haven't actually crystallised any gain or loss.

1404 said:

Edit: also you'd have to factor in any crypto trades made in the tax year. In the 24/25 tax year I think I've made £450 of trades, so I've used that portion of my £3k CGT already, apparently.

£450 of trades doesn't necessarily use up any of your annual CGT allowance, it's any gains or losses associated with those transactions that count towards it.

1404 said:

For example:

Someone has £5000 of ETH and it goes up in value to £10. They want to exchange it to BTC. So they have have to pay HMRC £400 for that exchange as it's a "sale" of crypto.

So they now have £9,600 of BTC. And the following month BTC crashes and the holding is now worth £2000.

So you this person paid tax on unrealized gains which were then wiped out. 

People are actually doing this? 

As above, you're comparing apples and oranges here - any such loss is only a paper one until or unless you sell/trade/exchange it, which you wouldn't do unless you really needed the money or you were wanting to crystallise a CGT loss to use to offset gains.

1404

Thanks, all. I am finally getting my head around it. 

Can anyone recommend an app or software which works out crypto tax? A quick Google reveals that there is one app/site which connects with Coinbase and presumably works it out for you. 

masonic

Hmm, sounds like a interesting idea to give an app I'd found on the internet access to my financial account.

As mentioned, calculations, especially automated ones, require accurate and complete data, which you don't have, so any result would be highly questionable.

You could just use something set up for shares, as the same principles apply and you should be able to find something more easily.