How Do I Calculate Capital Gains Tax For Bitcoin & Crypto Trades?

Capital Gains Tax (CGT) in the UK usually arises on any profit you have made from selling an asset at a higher price than what you bought it for. This includes any gains you make on cryptocurrency trades.

The tax will only be levied on the actual gain (not the entire selling price) so it is important to keep proper records of any trades that you make in order to calculate the base cost used in your CGT calculations.

Although selling cryptocurrencies on exchanges is where the majority of CGT gains will come from, other, not so obvious, circumstance might also result in a capital gain, such as trading it for something else (like using BTC to buy a drink) or gifting it to another person.

The basics of capital gains tax in the UK

Selling your cryptocurrency assets for a gain will attract CGT. In short, the gain is calculated by deducting the original cost of the asset from the selling price.

Once you have calculated all your gains for the tax year, you can deduct the annual exempt amount (which is £11,700 for the tax year 2018/2019) and calculate your tax liability on the remaining amount.

This annual exempt amount is the total for all your gains and not for every disposal that you make.

You will then either pay tax at 10% or 20%, depending on tax rate band that you fall under (basic, higher or additional).

For example, say you sell £12,000 worth of Bitcoin that you bought for £6,000, and a couple of months later you sell £15,000 worth of Bitcoin that you bought for £8,300, all within the same tax year. Your total gain for the period would therefore be:

Your taxable capital gain will come to £1,000 (i.e. £12,700 – £11,700 annual exempt amount). If you are a higher rate taxpayer (i.e. 20%), your CGT liability will come to £200, assuming you had no other taxable capital gains during the period.

As this is tax we are talking about, the calculations can, of course, get much more complicated, which we’ll talk a bit more about later on.

How can you report your capital gains to HMRC?

Before you report your capital gains you should have the following at the ready:

  • Your calculations for every capital gain you are reporting.
  • Records detailing the cost at which you purchased each asset and the amount you got for each sale.

Accepted records include receipts, bills and invoices, specifying:

  • the exact date and amount you paid for the cryptocurrency,
  • any additional expenses you incurred during the sale of the crypto (allowable costs) and,
  • the exact amount you received for selling your crypto.
HMRC crypto report
Report your bitcoin & crypto capital gains to HMRC.

There are two ways you can you report your capital gains to HMRC.

The first is through a self-assessment. You will need to register for Self-Assessment in the tax year (which runs from the 6th April to the 5th of April the following year) after you have sold your cryptocurrencies and the return must be submitted by 31st of January the year after that.

In practice, if for example you sold some Bitcoin on the 1st of July 2018, you will have to register by the 5th of October 2019 (the tax year following the sale) and submit your self-assessment by 31st of January 2020.

Tax Year – 6th April 2018 – 6th April 2019
Self Assessment Registration – Must be done by 5th October 2019
Self Assessment Submission – Must be done by 31st January 2020
Wait for HMRC to come back with amount of tax liability

HMRC released a dedicated YouTube series specifically created to help with self-assessment registration, submission and deadlines.

The second option to report capital gains is through HMRC’s ‘real-time’ Capital Gains Tax service. With this option, you don’t have to wait until the end of the tax year to report your taxable gains but you still need the same backup documents and do the required calculations before you can submit your gains.

In both options, HMRC will let you know how much tax you owe.

Why finding an accountant might be a better route

There are two main reasons you might want to consider engaging with an accountant to take care of your crypto capital gains tax.

Complicated tax rules

If you are not a professional that does this day in and day out, no one will blame you for not knowing everything there is to know about CGT rules in the UK.

Crypto tax rules can be complicated
Crypto tax rules can be complicated

Throw in a nascent industry like cryptocurrency trading and things can really get complicated.The first complication will be to accurately calculate the base cost of the cryptocurrencies you are disposing of. The base cost of disposals will be calculated in the following order:

  1. The ‘same day rule’, where coins bought on the same day as the disposal will not be included in the base cost of the larger pool of cryptocurrency holdings.
  2. Any coins bought within 30 days of the actual disposal (also known as the ‘bed and breakfast rule’) will also be held separate from the rest of the pool.
  3. The cost of the remaining pool of coins will be averaged similar to a Section 104

Other examples of possible complications include which expenditures can you take into account when calculating your base cost (ultimately reducing your tax liability), gifts to spouses and charities which might be exempt from CGT, calculating and deducting allowable losses, and the potential of utilizing your spouse’s unused capital allowances, to name a few.

Penalties and fees

Certain penalties become liable if you miss reporting deadlines but can also be levied on inaccurate reporting.

Avoid penalties by filing your crypto tax return on time
Avoid penalties by filing your crypto tax return on time

A penalty of £100 becomes immediately payable for any late submissions up to 3 months. After 3 months, additional fees become applicable.

Inaccuracy penalties can also be levied due to errors on submitted assessments.

This is specifically applicable to capital gains tax (among other tax types) and can be as high as 30% of PLR (“an additional amount of tax which is due or payable as a result of correcting the inaccuracy”) if it is shown that there was a lack of reasonable care.

It is therefore highly advisable to engage with a professional service that can save you time, money and the headache of going through line upon line of different tax rules while trying to determine which of these rules actually apply to your situation.

A qualified accountant or tax professional will ensure that you don’t pay more than you should while taking over the burden and responsibility for performing accurate and timely calculations.

Crypto Tax Helper take the stress and uncertainty out of crypto tax reporting by enabling cryptocurrency traders in the UK to calculate their capital gains tax for Bitcoin and other cryptocurrencies in 3 simple steps:

  1. Import transactions into the platform by downloading reports from any crypto exchange that you have used and upload it to the system.
  2. Easily calculate gains and losses for the year by choosing which trades, opening balances, losses and allowances to include in your report.
  3. File your tax return by sending your self-assessment to HMRC with a fully comprehensive crypto tax report to back it up.
Crypto Tax Helper
Crypto Tax Helper is a UK bitcoin & crypto tax calculator. Making it easy to calculate your crypto capital gains for HMRC.

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