The year is coming to an end and the tax season is just around the corner. Even if you like queuing in the UK, you shouldn’t wait too long to get your taxes sorted out. So let’s have a little tax small talk here and clarify the most important things so that we can quickly have tea again instead of taxes.
Cryptocurrencies are intangible since they are considered digital assets. If the cryptoassets have a realisable value, as well as a capability to be owned by anyone, it counts as a “chargeable asset”. As such, that’s the primary basis for imposing capital gains tax on cryptoassets.
In this section, with the help of the crypto tax professionals of Accointing.com, we dive deeper into the functioning of capital gains tax in different cryptoasset situations.
- Understanding the basics – Cryptoasset Disposal
Disposal is a term often encountered and tied to capital gains tax. Disposal refers to using the cryptoassets in a variety of ways, including the following:
- Cryptoassets used as payment for different goods and services
- Cryptoassets being exchanged for a different token type
- Cryptoassets given away to other people
- Cryptoassets sold for fiat money
- Cryptoassets sold for stablecoins
All these activities constitute a cryptoasset disposal. As such, you can then determine your need to pay capital gains tax by calculating any gains or losses you get as a result of crypto disposal.
- The more the better – Allowable Costs
In calculating gains or losses for capital gains tax, you can declare particular costs as a deduction to reduce your tax burden. These allowable costs include the following:
- Any transaction fees paid before the transaction is added to the blockchains
- Original pound sterling valuation that was paid for to acquire the asset
- Costs of advertising for a vendor or purchaser
- Costs covering professional services for contracts regarding disposal or acquisition of cryptos
- Costs incurred in making an apportionment or valuation for calculating gains or losses
Meanwhile, the following are not included in allowable costs:
- Costs deducted against profits used for income tax filing
- Mining activities costs, including electricity and equipmen0
- Hang in there! What does “pooling” mean?
Pooling is a method used to simplify the calculations for capital gains tax. It is used in shares and securities, as well as crypto assets. HMRC believes that crypto assets must be pooled per Section 104 Taxation of Capital Gains Act 1992.
How does pooling work in taxation? Essentially, you assign each crypto asset type that you have in its own “pool”. Then, every consideration (in pound sterling) paid originally for the tokens goes into every pool, thereby creating a “pooled allowable cost”.
Now, to illustrate pooling, let’s say you have three kinds of cryptos: Ether, Ripple, and Bitcoin. Each of these crypto token types creates one pool. Hence, you now have three pools – one for Ether, one for Ripple, and one for Bitcoin. Each pool of your cryptos will have its own pooled allowable cost associated with it.
If you frequently move, transact with, acquire, or dispose of your coins, then the pooled allowable cost for each of your crypto pools will then change often, too. Anytime you sell tokens from your pools, it shall constitute a “part-disposal”. Hence, your pooled allowable costs shall be deducted with the corresponding amount of sale when computing for your losses and gains.
There are also special pooling rules that apply when crypto assets were acquired within 30 days of selling. If you want to learn more, just visit the Accointing.com Crypto Tax Guide for the UK.
- It’s not rocket science – if you use Accointing.com
All these rules and regulations can be tiring. In a hectic everyday life, many people do not want to deal with their taxes. That is fully understandable! There is a solution on the market that will make things easier for you: Accointing.com. It is the best crypto-tracking and tax platform on the market. You can easily create tax reports that can be used directly for your tax return. Besides the USA, Germany and other countries, the tool also supports tax reports for the UK.
Now let’s finish this, our tea is getting cold…