While the debate about cryptocurrency rages on – is it a true asset class or not? – there is one thing that HMRC has a very clear position on. For the 2.3 million people in the UK who, Sky News reports, hold crypto coins or tokens, any profit made from the sale of these falls into a capital gain and is therefore taxable.
If, like many others, you are a newer investor who has made profits from the sale of cryptocurrency, but you aren’t 100% up to speed with capital gains tax, fear not. Below we will explain a bit more about how capital gains work, the taxes paid, and what you can do to defer paying it while continuing to put the profits to work.
What is a capital gain?
In short, a capital gain is the profit made on the sale of an asset. This asset could be property, stocks, bonds, funds, art, and yes, crypto. Simply put, if you bought an asset and sold it for a higher price, you’ve made a capital gain. And yes, if you sell it at a loss you have made a capital loss and there are some loss reliefs available for that (more on that in another article).
If you made a profit, the government is not to be denied and will charge a tax on your capital gains. This is called a capital gains tax (or CGT).
What is capital gains tax?
Capital gains tax (CGT) is the tax you will pay on the profits realised by the sale of an asset.
At present, in the UK, if you are a higher or additional rate taxpayer you will pay:
28% on your gains from residential property 20% on your gains from other chargeable assets
Cryptocurrencies, NFTs, and other digital assets fall into the “other chargeable assets” category and you would therefore be expected to pay 20% capital gains tax on the profits from the sale of these assets.
If you are a basic rate taxpayer there is a bit of a calculation to do, which you can find on the UK Government’s website.
Get your free guide to EIS
Want more information on EIS tax reliefs?
Download your copy of our free guide. Featuring an analysis of UK investor trends, investment case studies and an EIS cheat sheet.
A few useful facts about capital gains tax
- You don’t pay capital gains on “paper” gains. You’ll only be required to pay them when you decide to cash out.
- You do not pay tax on the first £12,300 of capital gain realised in any year.
- You can offset capital gains with capital losses you’ve made. Your tax is paid on the net gain.
- Certain types of investment allow you to defer CGT.
How to defer paying capital gains tax and put the money to work
The good news, for those wanting to keep their money working, is that this tax bill can be delayed by investing in an EIS fund.
EIS funds invest in early-stage startups and scaleups and offer qualifying investors all the tax reliefs afforded through the Enterprise Investment Scheme (EIS).
These tax reliefs include:
- The ability to defer paying capital gains on the sale of a previous asset (this deferral lasts until profit, or loss, from the EIS fund is realised.
- Income tax relief equivalent to 30% of the amount invested in EIS.
- No capital gains tax to be paid on profits created by the fund – so long as the shares are held for a minimum period of 3 years.
- Additional tax relief, which can be applied against income or capital gains, in the event the underlying fund assets go down in value.
Beyond the above, investing in an EIS fund, such as our Access EIS fund, gives you the opportunity to back startups working on incredible innovations, many of which are having a positive overall impact on society. It’s a well known fact that cryptocurrency mining is extremely energy intensive, so you might choose to invest in companies that offset that.
Investment into our Access fund starts at £5,000 (the industry average minimum investment is closer to £20,000) and you can invest at any time of the year.
To find out more, visit our website.
Register to learn
more about our data,
fund and venture capital