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Israeli court rules Bitcoin is not a currency. Are your crypto-gains taxable in the UK?

The Central District Court accepted the Israel Tax Authority’s position on 21/05/2019 that Bitcoin is an asset and not a currency, making profits on its sale liable to capital gains tax at 25%-30%.

This is quite similar to the position of the UK who have released a policy paper in December 2018 that sets out HMRC’s position on the tax treatment of income received from, and charges made in connection with, activities involving Bitcoin and other similar cryptocurrencies.

In most cases, individuals hold cryptoassets as a personal investment, usually for capital appreciation in its value or to make particular purchases. Per the brief they will be liable to pay Capital Gains Tax when they dispose of their cryptoassets.

Should your investment into the cryptos be of any other nature, for instance when you are running a business which is carrying on a financial trade in cryptoassets, then the profits will be considered trading profits on which income tax would take priority over the capital gains tax.

Hence, if you have made profits on cryptocurrencies, they will most probably be subject to capital gains tax (CGT) at a rate of up to 20% after deducting the annual allowance (£12,000 for the 2019/20 tax year). If you regularly buy and sell cryptocurrencies HMRC may seek to argue that you are liable to income tax at a rate of up to 45%. Most exchanges will keep a record of your transactions and let you download your history.

If you deliberately fail to declare taxable income or gains, HMRC has up to 20 years following the end of the relevant tax year to enquire into your tax returns. If tax has been underpaid, you may be liable to interest and penalties of up to 100% of the amount of tax due. In the most serious circumstances, criminal liability may apply.

If you need help in determining whether your crypto-gains are taxable and how to report these to HMRC, please feel free to reach out.