Can I Crystalise Crypto Profits using my Capital Gains Tax Allowance?

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Do the ‘bed and breakfast’ rules still apply?

NOTE: This article was written when the tax free Capital Gains Tax allowance was £12,300. It has since been reduced to £3,000.

Depending on when you’re reading this, it may be a Bitcoin bull market meaning prices are sky high.

When crypto values are soaring people often start thinking about selling their coins and taking the profits.

However, whenever you sell an asset you need to think about the taxes that are liable, one of which is Capital Gains Tax (CGT) in the UK.

At one point your CGT allowance could be used as a tactic to crystalise profits and reduce or avoid any CGT liability.

It was known as the ‘bed and breakfast’ strategy and involved selling an asset at the end of the tax year and using the annual tax free CGT allowance (currently £3,000 2024/25 tax year) to lock in gains before buying the exact same asset back the next day.

This was mainly used by people who held stocks and shares to effectively cut or remove their CGT liability altogether while continuing to benefit from any future growth.

How the ‘bed and breakfast’ deal worked (if crypto had been around):

•	You bought £10,000 worth of Bitcoin which is now worth £19,000.
•	You sell your coins on the evening of April 5.
•	You rebuy the exact same number of coins or thereabouts on the morning of April 6.
•	The original £10,000 cost of the crypto is automatically tax free.
•	Assuming you’ve made no other gains, you’ve used £9,000 of your £12,300 CGT allowance thus the profit incurs no tax.
•	You now hold £19,000 worth of Bitcoin but because this is now the base cost which is deductible against a future CGT liability, only the profit above this will now be liable for tax (assuming it goes above the following year’s tax free allowance).
•	This strategy can be used each year to cut future tax liabilities.

Do the ‘bed and breakfast’ rules still apply?

The ‘bed and breakfast’ loophole was scrapped in 1998 and replaced with what is called the CGT 30 rule.

This means that investors have to wait at least 30 days before buying the same asset again.

This could work to your advantage if the price of the crypto – or other asset – falls in this time but you’re still confident it will rise in the long term.

Equally if the price of the coin rises in this time and you had to spend more to get the same amount, this may still work in your favour if you factor in what you’ve saved on CGT and potential future gains.

This is certainly something to give careful consideration to given the volatility in crypto markets and the often dramatic price swings they experience.

One tactic to avoid having to wait 30 days is to purchase another similar asset.

For example, if you sold your Bitcoin, you could then purchase Litecoin without falling foul of the CGT 30 rules.

The rules are complicated, so it’s always best to check if you need to pay tax or seek the help of a financial professional.

NOTE: With shares it’s possible to avoid the bed and breakfast rules by selling your investments then buying the same asset within a stocks and shares ISA, which is tax free.

This strategy is known as a ‘Ben and ISA’ and also applies to investments purchased within a Self-Invested Personal Pension (SIPP).

However, at the time of writing it was not possible to put Bitcoin or other crypto directly into a SIPP (although you can buy shares in companies involved in cryptocurrency and blockchain technology with your pension).

CGT – Use it or lose it

With CGT it’s a case of use it or lose it – you can’t carry over unused allowance in future years.

However, it’s an individual allowance so if you’re married or in a civil partnership you can potentially benefit from £24,600 worth of tax free gains (at the time of writing).

In these circumstances, any transfer of your cryptocurrency (or other asset) between your husband, wife or civil partner – either through a gift or a sale – doesn’t create a gain (or a loss) to you.

You could move a portion of your crypto into their name and both sell your holdings to double the tax-free CGT portion of your profits.

Or you could sell then buy another crypto as soon as you’re in the new tax year, or wait 30 days to buy the same coin, to crystalise £24,600 in profits while benefiting from any future gains.

NOTE: The rules do not apply to gifts or sales to children. Any assets handed to them will be classed as a disposal and become liable for CGT. (Property is an exception to this as you may qualify for private residence relief.)

How to reduce, mitigate and avoid Capital Gains Tax (CGT)

Although bed and breakfasting may be a thing of the past, there are many ways to reduce, mitigate or avoid CGT on Bitcoin, Crypto, NFTs, other digital assets in the UK, and other asset classes.

The annual CGT allowance looks set to be frozen over the coming years so should take advantage of as many of the exemptions as you can.

Further reading:

• How to reduce or avoid Capital Gains Tax on cryptocurrency
• Do I have to pay Capital Gains Tax (CGT) on my Bitcoin?

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• Do I need to pay Inheritance Tax on my cryptocurrency?
• How to avoid or reduce Inheritance Tax (IHT) on Bitcoin
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