The deadline for submitting a tax return is tomorrow (Wednesday 31 January) – but some people who made massive gains by investing in bitcoin and have then sold their investment may be unaware that they owe tax.
In April 2016, a single bitcoin was worth £290; by April 2017 it was worth around £890, and today it is worth £7,688. Anyone who bought at a relatively early stage and has recently sold their holding is likely therefore to be sitting on substantial gains.
However, HM Revenue & Custom’s guidelines on the crypto-currency may cause confusion among investors who are looking to include the information in their self-assessment tax return.
Ed Molyneux, CEO and co-founder of FreeAgent, says: ‘This year an added complication could come from bitcoin, as some investors in the cryptocurrency will have taken advantage of its high valuation this year to cash out their investments.
‘It’s likely that HMRC sees bitcoin profits as being subject to capital gains tax, but there does not appear to be a definitive answer on the issue yet, which could cause confusion among investors. I would therefore urge anyone who has made money from bitcoin to contact HMRC directly to check whether they need to include the information in their self-assessment tax return or in a different capacity.’
This guidance is in line with that from the Revenue itself. In its 2014 document, ‘Revenue and Customs Brief 9’ on cryptocurrencies, HMRC states: ‘Cryptocurrencies have a unique identity and cannot therefore be directly compared to any other form of investment activity or payment mechanism.’
It states that the tax treatment of any transaction involving the use of cryptocurrencies needs to be looked at on a case-by-case basis depending on ‘its own individual facts and circumstances’.
Crucially, HMRC adds that a transaction ‘may be so highly speculative that it is not taxable or any losses relievable’. As an example, it cites gambling or betting wins that are not taxable. However, bear in mind that gambling losses (unlike trading or investment losses) cannot be offset against other taxable profits.
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