28 June 2024 , 11:53
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Cryptocurrency traders and miners could face varying tax burdens for their digital currency, as HMRC doesn't recognise it as a true currency for tax purposes. Martin Lewis delved into the complexities and exceptions surrounding cryptocurrency in relation to income and capital gains tax.
This could lead to traders being caught out if they're not aware of their tax obligations. In the latest episode of the Not the Martin Lewis Podcast, the eponymous star is accompanied by a panel of experts on his chosen topics. Joined by tax experts Kari Mellon and Rebecca Benneyworth, they discussed the boundary between CGT, Income Tax and, crucially, instances when the two overlap.
One such scenario is cryptocurrency, as one listener sought their advice: "I'm a basic rate taxpayer earning £25K a year. I bought cryptocurrency for £10K and I'm going to sell it for £500K. How much tax will I pay? ".
While Martin noted that they must have held the crypto for quite some time to have made such a profit, he pointed out that with regular currencies: "These days if you buy currency and you sell currency and you're not doing it for a job you just have it in your accounts you don't pay capital gains tax." Turning to his experts, Martin asked: "Is cryptocurrency a currency? " Kari highlighted that it's sadly not considered a currency "for the purpose of tax".
She clarified: "The sale of cryptocurrency usually is subject to Capital Gains Tax, but in limited circumstances, it can be subjected to income tax if you receive tokens from your employment, mining or staking." The Money Saving Expert emphasised for the listeners' understanding: "So if you've bought and sold it, it's Capital Gains Tax but if you've created it, that's what mining is, then it's seen as an income because you've created it as a form of work."
Rebecca added her thoughts on Capital Gains Tax for the listener: "There's no allowance for inflation, how long you've held it. So most of that gain is going to be taxed at 20%, almost all of it." Martin elaborated on Rebecca's point by comparing how normal currencies are treated by HMRC: "If someone had bought the house abroad, sold the house, got the money into a bank account, (didn't exchange) it back for 4 years and made a profit on the fact that they hadn't changed it back. That's when you don't pay.
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"But you can't do that if you sold the house for cryptocurrency and then the cryptocurrency appreciated in value you would still pay Capital Gains Tax on it. So even if it's for personal use, according to HMRC, cryptocurrency isn't a currency. Which some people, I suspect, will get quite annoyed about."