Thanks to the evolution of technology, cryptocurrency has become a key part of the UK online economy. There are a variety of cryptocurrencies available, all of which fall into the ‘digital currency’ category, and they are used around the world. All cryptocurrencies are an alternative form of payment, created using complex encryption and algorithms. In recent years, a lot of UK investors have turned their attention to cryptocurrency. As more and more people are becoming interested in this form of payment and its benefits, the topic of crypto tax in the UK has come up. So, do you know if you need to pay tax on cryptocurrency? Keep reading to find out.
Do I Need to Pay Tax on Cryptocurrency in the UK?
The majority of investors need to pay tax on cryptocurrency in the UK. You are required to pay tax on your cryptocurrency or ‘tokens’ as they are sometimes known, when you sell your tokens or exchange them for a different type of cryptocurrency. You will also need to pay tax if you pay for goods or services using cryptocurrency, or if you give them away to another person.
In What Circumstances Do I Need to Pay Tax on Cryptocurrency?
There are a number of circumstances when you do need to pay tax on cryptocurrency. This includes when you are buying, selling or getting paid in cryptocurrency. You also need to pay tax on cryptocurrency if you are mining crypto, or using it as a personal investment.
How Much Tax Do You Pay on Cryptocurrency?
The amount of tax that you pay on cryptocurrency varies, and it can fall under income tax or capital gain tax. If you buy or ‘use’ cryptocurrency as a personal investment, you will need to pay capital gains tax on the profits you make. There are two different capital gains tax rates for cryptocurrency; 20% for higher and additional rate taxpayers, and 10% for basic rate taxpayers. However, your overall taxable income will be taken into account, as will the size of your gain and your deducted allowances.
Can I Avoid Paying Taxes on Cryptocurrency?
Airdrop crypto can help you to avoid paying tax, as long as it’s not done as part of a trade, or if cryptocurrency is received without being in exchange of anything else. A crypto airdrop is a promotional activity that many blockchain based startups do, as a way to boost their cryptocurrency project.
There are also a range of allowable costs that are related to cryptocurrency, and these can sometimes be deducted from your gain to reduce the amount that you are taxed on. This includes costs such as transaction fees, advertising for a buyer or seller and contract creation for the transaction.
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