Understanding Crypto Tax for US & UK - Complete Guide [2024]
Updated on 12-May-2024 by CoinSoMuch Team
As everybody knows that the Cryptocurrency's Market is growing exponentially and we have seen market peaked at $3 trillion in November 2021, experiencing subsequent ups and downs before reaching $2.58 trillion in March 2024. (Source : Forbes)
In today's article, we'll dive in more in-depth about the Crypto Taxes In USA and UK, their implications and answers each of the possible question so you don't need to husstle on Internet to find each query.
So, Let's get started!
1. Crypto Taxes in the United Kingdom [2024]
In the UK, Her Majesty's Revenue and Customs (HMRC) views cryptocurrencies as property or capital assets, rather than currency, for tax purposes. This means that crypto transactions are subject to Capital Gains Tax (CGT) and, in some cases, Income Tax, depending on the nature of the transaction.
Taxable Events in the UK
Crypto transactions that trigger tax liabilities in the UK include:
Events | Description |
|---|---|
Selling Crypto for Fiat Currency (GBP) | When you sell your cryptocurrencies, such as Bitcoin or Ethereum, for British pounds (GBP), you will be liable for Capital Gains Tax on any profits made from the sale. The taxable gain is calculated by subtracting your original cost basis (the amount you paid to acquire the crypto) from the sale proceeds. |
Exchanging One Crypto for Another Trading | Trading one cryptocurrency for another, such as exchanging Bitcoin for Litecoin, is also considered a taxable event in the UK. HMRC views this as a disposal of the original crypto asset, resulting in a potential capital gain or loss. |
Using Crypto to Pay for Goods or Services | If you use your cryptocurrencies to purchase goods or services, you will be subject to Capital Gains Tax on any increase in value since you acquired the crypto. The taxable gain is calculated based on the fair market value of the crypto at the time of the transaction. |
Receiving Crypto as Income or Wages | If you receive cryptocurrencies as payment for services rendered or as part of your employment income, you will be liable for Income Tax on the value of the crypto at the time of receipt. This is treated in the same way as receiving traditional fiat currency income. |
Mining and Staking Rewards | Cryptocurrencies earned through mining or staking activities are generally considered taxable income in the UK. The value of the crypto at the time of receipt is subject to ordinary income tax rates. |
Airdrops and Hard Forks | In most cases, receiving new cryptocurrencies through New airdrops or hard forks is considered taxable income in the UK. However, the tax treatment may vary depending on the specific circumstances. |
What are the Updated Tax Rates and Allowances in the UK?
Capital Gains Tax rates for crypto transactions are aligned with the standard CGT rates for the 2024/25 tax year:
Basic Rate (up to £37,700 total taxable income): 10%
Higher Rate (£37,701 - £125,140 total taxable income): 20%
Additional Rate (over £125,140 total taxable income): 20%
What are the Capital Gains Tax Allowance in UK [2024]?
For the 2024/25 tax year, the Capital Gains Tax annual exempt amount is £3,000. This means that the first £3,000 of your total capital gains from all sources, including cryptocurrency, are tax-free.
What are the Income Tax Rates In UK [2024]?
If you receive cryptocurrencies as income or wages, they will be subject to the standard UK Income Tax rates for the 2024/25 tax year:
Basic Rate (up to £37,700 taxable income): 20%
Higher Rate (£37,701 - £125,140 taxable income): 40%
Additional Rate (over £125,140 taxable income): 45%
Reporting Crypto Taxes in the UK
In the UK, you are required to report your crypto gains and losses as part of your annual Self Assessment tax return. This involves completing the Capital Gains Summary (SA108) section of the tax return, as well as the main SA100 form for any income from crypto activities.
Pro Tip: "It's important to keep detailed records of all your crypto transactions, including the date, amount, value in GBP, and any fees or charges."
2. Crypto Taxes in the United States [2024]
In the United States, the Internal Revenue Service (IRS) treats cryptocurrencies as property for tax purposes, similar to stocks or other investments. This means that crypto transactions are subject to Capital Gains Tax, and in some cases, ordinary income tax rates.
Taxable Events in the US
Events | Description |
|---|---|
Selling Crypto for Fiat Currency (USD) | When you sell your cryptocurrencies for US dollars (USD), you will be liable for Capital Gains Tax on any profits made from the sale. The taxable gain is calculated by subtracting your original cost basis (the amount you paid to acquire the crypto) from the sale proceeds. |
Exchanging One Crypto for Another Trading | Similar to the UK, trading one cryptocurrency for another is considered a taxable event in the US. The IRS views this as a disposal of the original crypto asset, resulting in a potential capital gain or loss. |
Using Crypto to Pay for Goods or Services | If you use your cryptocurrencies to purchase goods or services, you will be subject to Capital Gains Tax on any increase in value since you acquired the crypto. The taxable gain is calculated based on the fair market value of the crypto at the time of the transaction. |
Receiving Crypto as Income or Wages | If you receive cryptocurrencies as payment for services rendered or as part of your employment income, you will be liable for Income Tax on the value of the crypto at the time of receipt. This is treated in the same way as receiving traditional fiat currency income. |
Mining and Staking Rewards | Cryptocurrencies earned through mining or staking activities are generally considered taxable income in the US. The value of the crypto at the time of receipt is subject to ordinary income tax rates. |
Airdrops and Hard Forks | In most cases, receiving new cryptocurrencies through airdrops or hard forks is considered taxable income in the US. |
Tax Rates and Allowances in the US
Capital Gains Tax Rates
In the US, Capital Gains Tax rates for crypto transactions depend on whether the asset was held for less than a year (short-term) or more than a year (long-term). For the 2024 tax year, the rates are as follows:
What are Short-term Capital Gains for US Crypto Traders?
Taxed at your ordinary income tax rate, which ranges from 10% to 37% depending on your taxable income bracket.
What are Long-term Capital Gains for US Crypto Traders?
0% for taxable income up to $44,625 (single filers) or $89,250 (married filing jointly).
15% for taxable income between $44,626 - $492,300 (single filers) or $89,251 - $553,850 (married filing jointly).
20% for taxable income above $492,300 (single filers) or $553,850 (married filing jointly)
What are the Ordinary Income Tax Rates For Crypto Traders?
If you receive cryptocurrencies as income or wages, they will be subject to the standard US federal income tax rates for the 2024 tax year, which range from 10% to 37% depending on your taxable income bracket.
How Crypto Traders Reporting Crypto Taxes in the US
In the US, you are required to report your crypto gains and losses on your annual federal income tax return (Form 1040). Specifically, you will need to complete the Schedule D (Form 1040) to report capital gains and losses from the sale or exchange of cryptocurrencies.
The IRS also requires taxpayers to answer a specific question on Form 1040 regarding their involvement with virtual currency transactions during the tax year. Failure to accurately report crypto transactions can lead to potential penalties and interest charges.
What Are The Tax Planning Strategies For Crypto Traders In US & UK?
Both in the UK and US, there are various tax planning strategies that crypto investors and traders can consider to potentially reduce their tax liabilities:
1. Tax-Loss Harvesting
This strategy involves selling crypto assets at a loss to offset any capital gains from winning trades. You can carry forward any unutilized losses to future tax years.
2. Hold assets for over 1 year (US only)
By holding crypto for more than a year before selling, any gains get taxed at the lower long-term capital gains rates compared to ordinary income tax rates for short-term holdings.
3. Use Tax-Advantaged Retirement Accounts
In the US, certain retirement accounts like IRAs allow crypto investments while deferring capital gains until withdrawal during retirement.
4. Gifting up to Annual Exempt Amounts
Both the US and UK allow gifting crypto assets to others like family members up to a certain annual tax-free allowance without incurring gift taxes.
5. Donate Appreciated Crypto to Charity
When you donate crypto that has increased in value to eligible charities/nonprofits, you can deduct the entire donated amount without paying capital gains tax.
6. Relocate to crypto tax havens
While not feasible for everyone, moving to jurisdictions like Portugal or Germany that have relatively crypto-friendly tax policies can potentially reduce your crypto tax burden.
Final Recap
By understanding the taxable events, tax rates, reporting requirements, and seeking professional advice when needed, you can easily tackle the Crypto Taxes with ease & legally with peace in mind. Last but not the least, try to keep record of your all transactions with the help of Crypto Tracking Tools like Koinly, TokenTax and etc.
Disclaimer: This article is written for Educational and Informational purposes, written by our Expert's Writers. Don't make any decision based on this article and try to seek Financial Advise from Legal Advisors.
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