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.
There are many implications of owning cryptocurrency that investors need to consider.
- 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?
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.
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.
Resources for your crypto side hustle
If you’re one of the ‘side hustlers’, or if you’re considering investing in cryptocurrency outside the scope of the service provide by your financial adviser, we’ve got some resources that may help.
If you’re looking for an exchange to purchase cryptocurrency then take a look at our review of the top 5 exchanges to buy and invest cryptocurrency 2021.
We’ve also examined the best sign-up bonuses on offer for joining an exchange which help expand your crypto holdings.
Once you’ve bought your crypto, you might want to make it work for you an earn passive income while you hold.
We’ve listed the top crypto savings accounts which offer market-leading interest rates as high as 12% if you’re prepared to take a little more risk.
If you want to put some of your crypto into cold storage for maximum security, you could try using a hardware wallet such as Trezor (read review).
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?
- How can I avoid Capital Gains Tax on my cryptocurrency?
- 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?
- How can I avoid Inheritance Tax on my cryptocurrency?
- 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?
Adam is the founder of The Crypto Adviser which offers experts guides and reviews on all things related to Bitcoin and cryptocurrency.
Adam is Diploma for Financial Advisers (DipFA) Level 4 qualified, a Member of the London Institute of Banking and Finance (MLIBF), and has worked for many years as a journalist and PR consultant, having studied with the National Council for the Training of Journalists (NCTJ).