The 31st of January 2024 tax deadline is looming and HMRC has made it clear crypto investors need to pay their fair share. Learn how to prepare for your Self Assessment Tax Return.
HMRC is sending ‘nudge letters' to crypto investors around the UK. These letters remind investors they need to pay taxes on any crypto income or capital gains. Whether you’ve been on the receiving end of one of these letters or not, the message is clear - crypto investors need to take tax seriously.
It doesn’t matter if you’re filing your taxes for the first time in 2024 or not - you’ll need to do some crypto tax prep. This ensures you’re paying less tax and that you’re paying it on time.
We’ll be guiding you through how to best prepare for your UK crypto taxes to make sure you’re not left panicking come tax time.
Know the UK financial year
The UK financial year runs from the 6th of April to the 5th of April every year. So the previous financial year is from the 6th of April 2023 to the 5th of April 2024.
Of course - when you file your taxes this year - you’ll actually be filing for the previous financial year of 6th April 2022 to the 5th of April 2023.
Why does all this matter?
If you want to optimise your tax position and pay less tax - you need to do this before the end of the financial year (EOFY). Any moves you make after the 5th of April will count towards your next tax return.
How to optimise your tax position before the EOFY
Knowing how to optimise your tax position comes down to understanding the UK’s tax rules. The UK has a lot of great tax breaks available, as well as some specific rules that you can use to pay less tax.
UK income tax break
Got income from crypto investments?
HMRC doesn’t tax your first £12,570 of income provided you don’t earn more than £125,140. This applies to Scottish taxpayers too.
UK trading and property tax break
The government introduced a £1,000 trading and property allowance back in 2017.
This means you’ll get a tax free allowance of £1,000 on any income from trading or property. If you have income from both trading and property, you’ll get a £2,000 allowance.
If your trading income is less than £1,000 - you don’t need to declare this to HMRC.
UK Capital Gains Tax break
Unlike many other countries, the UK doesn’t have a long-term capital gains tax discount. But it does have an annual capital gains tax free allowance of £6,000 as of the 2023 financial year.
This is also known as the annual exempt amount. This means you’ll pay no Capital Gains Tax on any capital gains under £6,000 - which is a significant sum for many crypto investors!
Gift crypto to your spouse or civil partner
Gifting crypto in the UK is subject to Capital Gains Tax - unless it’s to your spouse or civil partner.
This might not sound like a big deal, but if you can use this to make the most of your capital gains tax free allowance.
For example, if you know you’re over your tax free allowance but still have more crypto you want to sell, you could gift it to your partner - which is tax free. Then your partner could sell it and utilise their capital gains tax free allowance as well.
For married couples or those in civil partnerships, this rule essentially doubles your capital gains tax free allowance.
Make the most of lower income tax brackets
There is no limit on how much crypto you can gift to a spouse or civil partner in the UK. This is significant because if your spouse is in a lower income tax bracket than you are - they’ll pay less Capital Gains Tax overall.
Investors who are married or in civil partnerships in the UK should carefully consider who in the partnership is best placed to sell, swap and spend crypto assets and plan accordingly.
Offset capital gains with capital losses
You won’t pay any capital gains tax on losses, but you should keep a good record of capital losses anyway. This is because you can use capital losses to reduce your overall tax bill by offsetting them against capital gains.
In the UK, there is no limit on how large or small a capital loss you can offset each year. You can also carry losses forward (although you do need to registered any unutilised losses with HMRC within 4 years in order to do so).
What this means is you can use capital losses to keep yourself within your Capital Gains Tax free allowance and pay the lowest amount of tax possible.
For example, let’s say you made a net capital gain of £14,000 in one tax year and you had an overall capital loss of £5,000 in the same tax year. You could offset £1,700 as your net capital loss for that tax year - meaning you’d pay no Capital Gains Tax. Then you could carry forward the remaining £3,300 in capital losses to offset against gains in future tax years.
Track your unrealised gains and losses
We’ve only looked at realised gains and losses so far, but tracking your unrealised gains and losses is just as important.
You have a realised gain or loss anytime you sell, swap, spend or gift (excluding to spouse) your crypto. Before this point, you have an unrealised gain or loss. This means you haven’t yet sold the asset, but the price of the asset has either increased or decreased since you bought it.
If you’ve got a large capital gain, it’s well worth looking through your unrealised losses to identify any that you wish to turn into realised losses. You can then sell, swap or spend these assets, declare a capital loss and offset this against your capital gains to pay less tax.
Invest in a self-invested personal pension
If you’re looking to HODL long-term, one of the best ways to reap the rewards is to invest in crypto through a self-invested personal pension (SIPP). While many mainstream banks and financial institutions aren’t yet offering this option - a select few are.
If you buy crypto through a SIPP and later sell it - you’ll pay no Capital Gains Tax or Income Tax.
Know the UK tax deadline
Sounds obvious, but you’d kick yourself if you got a hefty tax fine just because you didn’t get your taxes filed in time.
The UK tax deadline is the 31st of January 2024 for online tax returns. The UK tax deadline for tax returns submitted by post is the 31st of October 2023.
This is the deadline for filing your tax return for the 2022 - 2023 financial year (6th April 2022 - 5th April 2023). You’ll need to report all crypto income, capital gains, and capital losses for this period by the 31st of January 2024 at the latest.
Another important date for some investors is the 30th of December 2023. If your total additional tax liability (from income and capital gains) is less than £3,000, if you file your taxes online by the 30th December 2023, your tax bill can be collected via your tax code.
One more thing - the deadline to pay your tax bill is also the 31st of January 2024. So if you’re leaving submitting your tax return until the last minute - you’ll also be liable to pay your tax bill up front.
Register to file UK taxes online
The form you’ll use to file your annual crypto taxes is your Self Assessment Tax Return (and Capital Gains Tax Summary if submitting via post). You can use this form to report any additional income from crypto, as well as your capital gains.
You can download the SA100 Tax Return 2023 form online and submit it via post if you prefer - alongside the Capital Gains Tax Summary 2023.
However, it’s much easier to file your taxes online using the Government Gateway service. The Self Assessment Tax Return and Capital Gains Tax Summary are both available on this online platform.
If you’ve not submitted a Self Assessment Tax Return before, you’ll need to register by the 5th of October 2023. If you haven’t done this already, you should contact HMRC to find out if you can get registered in time for the tax deadline in January.
Know your Income Tax bracket and Capital Gains Tax rate
Though HMRC will calculate your tax bill for you - it’s still good to know how much you need to put aside so you’re not stuck with a huge bill and no means to pay it!
Your crypto income will be taxed at the same Income Tax Bracket you’re in currently. Your Capital Gains Tax rate will be between 10% to 20% depending on how much your income is. See the UK tax rates for crypto.
Use Koinly for quick UK crypto tax prep
It’s a lot of information to keep in mind and can get really overwhelming. That’s without doing any actual maths to calculate your capital gains, losses, income and subsequent taxes.
Fortunately, prepping for your crypto taxes is simple with Koinly. All you need to do is import your complete crypto transaction history using API or CSV file import and Koinly will do the rest.
Our crypto tax software will look through your transactions and do all the calculations for you. You can just head to the tax reports page where you’ll find a simple summary of everything you need to know including:
- Capital gains and losses
- Other gains
- Costs and expenses
- Gifts, donations and lost coins
On the same tax reports page, you’ll find a variety of specific tax reports to download like your HMRC Capital Gains Summary, Income Report and Complete Tax Report.
You can also track your unrealised gains and losses from your Koinly dashboard, letting you easily identify opportunities for tax loss harvesting throughout the financial year.