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Knowing the tax implications of cryptocurrencies

11 July 2022 • HMRC News, Warrener Stewart London, Warrener Stewart News

With cryptocurrencies becoming more prevalent over the last few years, Warrener Stewart is increasingly being asked to help clients who are unsure of the tax regulations associated with these investments.

Huge volatility in the value of cryptocurrencies can result in large gains or losses for investors. Either situation can greatly affect an investor’s personal tax situation alongside other tax considerations such as property and shares. As a result, some people who are not currently submitting a tax return may find they need to register for one. Investors may find they could benefit from tax advice to give them the peace of mind that they’re compliant with tax regulations and paying the correct amount.

How Warrener Stewart can help

Ryan O’Connor, Tax Manager at Warrener Stewart, said: “In some cases, clients provide us with the details of their cryptocurrency transactions and ask for help. We can ensure they’re paying the correct amount of tax and that their capital gains annual exemptions are utilised. In addition, we can help with tax planning – advising on the tax implications of proposed transactions.”

An increasingly complex tax situation

Certain events have made the tax situation on cryptocurrencies even more complicated.

Ryan explained, “In August 2017, the blockchain of Bitcoin experienced a split, known as a hard fork, due to a disagreement on how to accommodate increased demand. This resulted in the creation of a new cryptocurrency, Bitcoin Cash. Investors were unsure of the tax implications and many turned to tax advisers for support. More recently, it has become increasing common for investors to receive an allocation of tokens, known as Airdrops, based on an existing holding or as part of a marketing campaign and clients sought our help to understand their tax position.”

The range of people investing

Whereas cryptocurrencies initially had a niche appeal amongst fans of technology, awareness has recently widened.

“Cryptocurrency investors can often include people who are willing to take a risk in return for a potentially substantial reward and or people who have grown up with technology and see it as the future. And it’s becoming more mainstream now, for instance, Tesla has allowed people to buy cars using Dogecoin,” said Ryan.

Technical considerations

As well as the tax considerations, there are other areas to be mindful of when investing in cryptocurrency. There have been news stories about investors forgetting or losing their cryptocurrency password. And in another high profile news story, someone had taken their old hard drive to landfill in 2013 but later realised there was £210m of bitcoin stored on it. Permission to search for the missing hard drive has yet to be granted.

Useful terms

Cryptocurrency. An international digital-only currency, where units of currency are generated, verified and transferred independently of a central bank.

Bitcoin. One of the most common types of cryptocurrency.

Blockchain. A digital method of recording transactions. As there’s no bank to provide a statement of transactions for cryptocurrencies, a blockchain is a decentralised electronic method of checking transactions.

If you would like to discuss cryptocurrency taxation, please contact Ryan O’Connor on either 020 7731 6163 or info@warrenerstewart.com

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