Do I Need an Accountant or Financial Adviser to Help with My Crypto Tax?

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Did you know that 1 in 5 people who use a financial adviser invest in a ‘side hustle’ outside of the portfolio covered by the expert?

Out of these, nearly 10% hold the likes of Bitcoin, Ethereum, Litecoin, Ripple and Cardano, together with many other cryptocurrencies, according to a report in FT Adviser.

While many people are happy to do a bit of DIY investing on their own and dabble with more speculative assets, a growing number of UK financial advisers and accountants are offering specialist crypto tax advice.

Many people will need this expert advice on how the tax – such as Capital Gains Tax and Inheritance Tax – on their crypto works as the rules that apply can be complex.

There are many implications of owning cryptocurrency that investors need to consider.

These include:

• The gains made when selling your crypto for fiat currency
• Mining cryptocurrencies and the tax on these profits
• Margin trading and how you should report this to HMRC
• The tax implications of rolling one crypto gain into another coin
• How arbitrage trading might affect your tax liability
• The impact of an ICO investment on your tax status?
• Maximising the tax reliefs available in the context of crypto
• The tax liability on profits from Non-Fungible Tokens (NFTs)
• Have you received any profit from staking crypto?
• Do you participate in airdrops? Have you made a taxable profit?

With income tax, Capital Gains Tax, Inheritance Tax and VAT (if you’re crypto activity is carried out as a business) to consider, it’s often a good idea to seek expert guidance.

You may also be liable to pay National Insurance contributions if your crypto is received from an employer as an alternative to a cash salary.

Mining bitcoin has its own set of tax implications, such as Income Tax on mining rewards. Also, if you sell the coins you receive as a reward then Capital Gains Tax may be due.

Crypto-specific accountants and financial advisers

More and more financial advisers or accountancy firms are offering cryptocurrency-specific advice to help you navigate the pitfalls and ensure you comply with HMRC and the UK’s tax law.

If you want to reduce your accountancy fees it’s vital you keep detailed and accurate records of all activities relating to your cryptocurrency investments.

Also, if you’re keen to reduce the tax liability on your cryptocurrency when you come to sell then it’s import that your tax affairs are structured in the right way.

Cryptocurrency legislation in the UK is constantly evolving and many investors may struggle to keep up with the latest tax rules.

This is where a tax specialist can potentially add a huge amount of value.

Can I reduce the amount of tax I pay on my cryptoassets?

If you trade cryptocurrency, it is possible to minimise your Income Tax liability by offsetting any loses against other income or potential future profits from your trading activity.

In certain situations it’s possible to carry forward losses into the future and offset them at a later date.

There are also ways of structuring your financial affairs to ensure they ordered in the most tax efficient way possible while complying with the law.

Here are two useful articles:

• How to reduce an Inheritance Tax (IHT) liability on crypto
• How to reduce and avoid Capital Gains Tax (CGT) on cryptoassets

Can I pay cryptoassets into my pension?

No. Bitcoin and other cryptocurrencies are classed as property in the UK, not money.

Therefore HMRC does not allow you to pay crypto as a contribution into your pension and benefit from the usual tax reliefs offered.

However, there are ways to gain exposure to crypto in your pension indirectly through crypto mining stocks or via a business arrangement, such as a SSAS.

Other useful resources

We’ve written extensively about the tax implications and regulations surrounding crypto in the UK. Here are a few articles that may help:

• Do I have to pay Capital Gains Tax on my Bitcoin and Cryptoassets?
• Is my Bitcoin covered by the Financial Services Compensation Scheme?
• Do I have to pay Inheritance Tax on my Bitcoin and can my crypto be inherited?
• What happens to my Bitcoin and cryptoassets when I die?
• Divorce and Bitcoin: Is my spouse hiding their cryptoassets from me?
• Is Bitcoin legal to buy, sell and trade in the UK?