If you pay tax on your cryptocurrency trading profits or not depends on where you are tax resident.
Thousands of investors have made and lost fortunes over the past year as the value of digital currencies soared, then plunged away.
The lucky ones who cashed out at the height of the boom would have made big profits.
In most countries, digital currencies are regarded as investments rather than legal tender for spending as money. Local rules will apply to tax on profits.
Here the rules for British tax residents are outlined –
Do I have to declare digital currency gains?
If you pay tax in the UK, reporting your digital currency gains depends on how you made the money.
You are one of two alternatives:
- A trader who makes money from charging clients a fee for placing digital currency transactions on the market. Traders also deal their own digital currency.
The hallmark of a trader is someone who buys with the intention of selling quickly at a profit.
Traders run an exchange or broker deals and pay income tax on their profits.
- An investor who buys digital currency and intends to hold onto them until the price rises. Investors tend to look at medium to long term holdings of five to 10 years or more.
Investors pay capital gains tax on their profits
Isn’t currency exchange exempt from tax?
Yes, but the UK government does not recognise any digital currency as legal tender, so the exemption does not apply.
When is my tax due?
The tax year ends on April 5, 2018. Any earnings from trading or profits from investing digital currency for the year must be declared on a tax return due for filing for individuals by January 31, 2019. Any tax must be paid by then as well.
What if I have spent the money?
Unlucky. You must still pay the tax, although HM Revenue & Customs might come to an arrangement if you can show a hardship.
Will the tax man know if I don’t tell?
Yes. Any digital currency trade in the UK will be recorded by a trader or exchange and they hand a list of customers to HMRC every year. You may not be caught for a while, but the likelihood is the tax man will come looking for you.