To give some insight into what tax you might need to pay I have carried out some basic calculations of what might be considered typical Cryptocurrency trades and investments.

It is important to note that since HMRC are still yet to clearly define the tax rules applicable to Cryptocurrencies that the calculations below are to be used as examples only.

#### Income Tax

Bobby earns £30,000 per annum from his employer on a PAYE basis (tax owed is automatically deducted each time he is paid).

Bobby has invested £10,000 of his savings into ‘XCoinX’.

‘XCoinX’ was priced at £10 per coin when Bobby purchased these coins.

Bobby owns 1000x of ‘XCoinX’.

Bobby decides to sell his position after only 1 day since the price spiked to £15 per ‘XCoinX’.

Bobby has sold back into Sterling and now has £15,000, a £5,000 profit.

*How much Tax does Bobby owe?*

HMRC are likely to view this purchase of ‘XCoinX’ as a ‘trade’.

This means that it is likely to be taxed under Income Tax.

Bobby already earns £30,000 per annum from his employer and therefore has no Personal Allowance to use.

When HMRC assess Bobby’s income for that year they will add the £5,000 profit made from trading to Bobby’s earned income.

A total of £35,000.

Bobby is classified as a Basic rate tax payer.

Bobby owes HMRC 20% of the £5,000.

__A total of £1,000 Income Tax is owed.__

*What if Bobby chose to invest for a longer period of time?*

HMRC might have viewed this as investing instead of trading. This would then potentially mean that HMRC treat Bobby’s profit as a Capital Gain.

If this were the case Bobby has £11,300 of Capital Gains Allowance that he can benefit from before any tax is paid. Since the £5,000 profit remains within this allowance no tax is then owed to HMRC.

#### Capital Gains Tax (CGT)

I would like to highlight that CGT is a much more complex calculation due to its dependence upon a person’s Income and Income Tax Rate. I have laid my calculation process out as clearly as I can.

*Note: CGT is based on a person’s Income Tax Rate and will increase depending on the total gain made. *

*Think of this as being a sliding scale through the Income Tax Brackets (refer to previous section Personal Tax treatment of Cryptocurrency** (UK)/UK Income Tax Rates). *

*The larger the capital gain you make the more tax you will pay at 20% (Higher/Additional Rate) once you have maxed out the Basic rate 10% bracket.*

Bobby earns £30,000 per annum from his employer on a PAYE basis (tax owed is automatically deducted each time he is paid).

Bobby has invested £100,000 into ‘XCoinX’.

‘XCoinX’ was priced at £10 per coin when bobby purchased these coins.

Bobby owns 10,000x of ‘XCoinX’.

Bobby decides to sell his position after 1 year.

The price has risen to £15 per ‘XCoinX’.

Bobby has sold back into Sterling and now has £150,000, a £50,000 profit.

HMRC are likely to view this as an investment and it is likely to fall under CGT rules.

Bobby already earns £30,000 per annum from his employer and is classified as a Basic Rate Tax Payer.

Bobby has not used his Capital Gains Allowance of £11,300 toward any other investments.

Therefore to calculate Bobby’s tax we first deduct the Capital Gains Allowance from the investment gain;

£50,000 – £11,300 = £38,700.

£38,700 is the amount liable to CGT.

£38,700 will be charged at the two rates of CGT since the gain is large enough to exceed the Basic rate bracket.

Let’s first calculate this split in tax rates before calculating the full tax liability.

As we know, Bobby is a Basic Rate Tax Payer and earns £30,000 per annum.

He has a Personal Allowance of £11,500. Therefore £30,000 – £11,500 = £18,500.

As per the Income Tax Rate brackets, Basic rate Tax is owed on income between £1 and £33,500.

Therefore Bobby has £15,000 left of this Basic rate bracket since he has used up just £18,500 of the £33,500 from his earned income.

So, £15,000 of the £38,700 will be liable to CGT Basic Rate tax at 10%.

This leaves £23,700 of Bobby’s gain to be taxed.

Since Bobby has used his entire Basic rate Income Tax bracket he is now liable to Higher/Additional rate tax on the £23,700 gain. This will be charged at 20%

Therefore:

£15,000 at 10% = £1,500.

£23,700 at 20% = £4,740.

__Total CGT owed = £6,240.__

I think it goes without saying that Tax is a complicated area.

I would always encourage you to speak with a Tax Specialist and or a Tax qualified Accountant should you need advice when managing your taxation.