The beginning of April often means a flurry of paperwork for anyone who has to fill in a tax return. Whether you’re organised and have your figures with your accountant within days of the start of the new tax year, or whether you’re a habitual scramble-to-the-wire press ‘submit’ at 11.55pm on 31st January kind of person, you’ll know that being scrupulously honest with your numbers is the best policy.
Of course, tax returns aren’t just for the self-employed; they’re a necessary evil for those with investments too. As 2017 was a bit of a bumper year for cryptocurrency, there are now more than a few investors who own digital assets or have turned their digital assets into sizeable profits. However, the position on declaring those investments still isn’t clear.
What is the tax position on cryptocurrency investments?
In short, it’s still a grey area. However, it is gaining clarity in the US, and it’s worth assuming a similar position in the UK. The IRS guidance hasn’t actually been updated since 2014, but that doesn’t mean that it has changed, even with last year’s huge gains.
As a lot of lucky people made an on-paper profit on their Bitcoin investments last year, this is the first tax return that’s really going to be significant in terms of cryptocurrency investment gains. In the US, the IRS treats cryptocurrency as property rather than cash, i.e. it’s viewed in the same way as your house, your car, or even any land you may own. The problems start when someone decides to cash some of that investment in – then there’s an obligation to tell the tax man.
Is that a safe assumption to make for the UK?
In short, yes. The tax position at the time of writing would appear to be the same (although always consult a tax advisor when making or disposing of investments to do it in the most tax efficient way possible). As with any other major purchase, screenshot transactions so that you have a record of the purchase price, as this will affect the amount of tax you pay at a later date. As the digital currency market is still very young, bear in mind that any exchange you use to buy your currency might not be around in a few years when you come to sell it, so keep records of everything. You might even want to set up a dedicated ‘investments’ email address (although be careful that you’re not posting security logins to yourself as well, as that tidily puts everything in one place for the lucky hacker!).
Yes. As with any significant gain on any asset, don’t try to hide your profits as the taxman will catch up with you sooner or later. The anonymity of cryptocurrency might be tempting in terms of trying to hide trades (or simply not declaring gains), but it’s just not worth the risk. Besides, if you were one of the lucky ones that did well on Bitcoin last year, look on the tax you owe as a relatively small price to pay on the path to digital currency becoming a mainstream investment!