In HMRC guidance in Revenue and Customs Brief 9, they have specified that bitcoin profits have to be reviewed case by case with simple interpretation. The general guidance is:
·Deliberate trading (known as bitcoin mining) – income tax;
· Investment – CGT
· Gambling – tax free but no tax relief on losses
1. Question: I have some bitcoins that I bought in 2013, now I want to sell them. I have used my CGT allowance for the year but my wife has not. How should I do?
The general rule is that “no gain or loss shall be recognized on a transfer of property from an individual to a spouse “ . In this case, you can transfer some bitcoins to your wife and she can then sell them for CGT purposes. She becomes entitled to the net sale proceeds.
2. Question: I have started a company in Panama. I am declared as the director (not a nominee) and also with the bank account for the company. I'm not trying to hide anything. What I would like to do is move Bitcoin assets (this is the classification HMRC have called it) to the company, hold it here and then possibly draw a wage each year in years to come. How should I do?
If you give your bitcoin to your company, it will trigger a capital gain. The best way is to lend Panama company your bitcoins. That can be withdrawn from the company at any time with no tax consequences. You don't get taxed again on the same money. You can cash out your self by taking advantage of your spouse’ CGT allowance and doing over several years
3. Question: If my company accept bitcoins as payment, do I have to pay taxes on that?
First, VAT will be due in the normal way from suppliers of any goods or services sold in exchange for Bitcoin or other similar cryptocurrency. The value of the supply of goods or services on which VAT is due will be the sterling value of the cryptocurrency at the point the transaction takes place. When being paid in Bitcoins and other crypto currencies then you would need a record of the holdings and report any fluctuation in value as at your financial year end. Realised gains and losses are subject to corporation tax
Disclaimer: The information contained in this site is for general guidance on matters of interest only. You should contact your tax accountant before making any decision.
I think this is something people should be discussing more. There are a couple of things I don't understand
From the HMRC brief:
"Whether any profit or gain is chargeable or any loss is allowable will be looked at on a case-by-case basis taking into account the specific facts. Each case will be considered on the basis of its own individual facts and circumstances. The relevant legislation and case law will be applied to determine the correct tax treatment. Therefore, depending on the facts, a transaction may be so highly speculative that it is not taxable or any losses relievable."
Question: What constitutes "so highly speculative"? Is an ICO investment so highly speculative that it is not taxable?
Also from the HMRC brief:
"Chargeable gains: CT and CGT - if a profit or loss on a currency contract is not within trading profits or otherwise within the loan relationship rules, it would normally be taxable as a chargeable gain or allowable as a loss for CT or CGT purposes. Gains and losses incurred on Bitcoin or other cryptocurrencies are chargeable or allowable for CGT if they accrue to an individual or, for CT on chargeable gains if they accrue to a company."
What does "within trading profits or otherwise within the loan relationship rules" mean?
Thanks