Gifting Crypto Tax Guide

Introduction

What is a ‘gifting crypto tax’?

Much like giving cash or stocks and shares as a gift, you can also gift cryptocurrency.

However, in numerous countries, including the UK, transferring crypto to someone else is treated as disposing of an asset or making a sale. Consequently, it becomes subject to the taxation laws of that country, leading us to the regulations surrounding the tax implications of gifting crypto.

Capital gains tax (CGT) and gifting crypto: tax rules

If you’ve purchased cryptocurrency and it has appreciated in value, then gifting it to someone else may trigger Capital Gains Tax (CGT) in many countries.

With CGT, you typically pay tax on the gain or increase in value that the crypto has experienced, not the entire value of the crypto at the time of gifting.

However, the rules regarding CGT can vary by country, and you might be able to offset capital losses against your gains, potentially reducing your overall tax liability.

On the other hand, if you’re gifting an asset that has decreased in value since you acquired it, you would incur a capital loss, and you may not be required to pay tax on your gift.

It’s advisable to keep records of your losses to potentially offset them against any gains, ultimately reducing your tax liability.

Different countries have their own CGT systems with varying rates and exemptions. Let’s delve into some key principles for calculating your gifting crypto tax in the UK.

Don’t forget to take advantage of the crypto capital gains tax advisors at Crypto Tax Degens.

Is there a gifting crypto tax in the UK?

In 2018, HMRC issued guidelines regarding when Capital Gains Tax (CGT) is applicable after gifting cryptocurrency.

It’s important to note that you don’t need to pay tax on crypto gifts given to your spouse or civil partner, unless you’re separated or transferring assets for their business to sell. Additionally, in the UK, there is a personal CGT allowance of £12,300 (at the time of writing).

This means that if the gains from disposing of your assets, whether through gifting, selling, or swapping, remain under £12,300 in a tax year, no CGT is owed.

Your income level also affects the tax rate you pay.

Here’s a summary of HMRC’s stance on gifting crypto tax:

• If you received the asset for free, you calculate the gain based on its market value.
• If you use capital losses to offset your gain, you must report this to HMRC.
• Certain allowable costs can be deducted, including transaction fees paid before your purchase was recorded on a blockchain and a portion of pooled costs. HMRC requires
• records for each pool.
• Calculating pooled costs can be intricate, especially if the blockchain underwent a hard fork. We’ve previously discussed well-known forks from Bitcoin.
• Crypto mining costs are among the expenses that cannot be deducted when determining gains.

 

HMRC and crypto tax

Cryptocurrency taxation in the UK is an ever-evolving landscape.

Previously, we discussed cryptocurrency taxation in the UK, highlighting that for individuals engaged in trading, income tax takes precedence over Capital Gains Tax (CGT). For companies, gains are considered part of their trading profits.

Starting from November 2021, HMRC initiated the practice of sending cryptocurrency tax reminder letters to investors. These letters serve not only financial purposes but also aim to educate taxpayers.

HMRC employs campaigns like these to prompt taxpayers to assess their earnings and maintain meticulous records.

Conclusion

For individuals earning crypto in the UK, a solid grasp of tax obligations is essential to steer clear of penalties and legal complications. Don’t hesitate to seek out professional crypto tax advice on crypto taxation to stay compliant and make well-informed financial choices in the cryptocurrency realm. Fortunately, you’re in the right place.

Join our community of crypto tax enthusiasts today to access enduring insights into the intricate world of crypto taxation, directly from the renowned crypto tax expert, Andy Wood.