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How to Avoid Crypto Tax UK

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How to Avoid Paying Tax on Cryptocurrency in the UK

Last updated: Friday, 2 December 2022

Want to know how to avoid paying tax on cryptocurrency in the UK? There are ways to strategically - and legally - avoid your crypto taxes while keeping His Majesty’s Revenue and Customs (HMRC) off your back. Here's 8 tax minimising tactics you can make use of before the EOFY in April!

How to avoid paying tax on cryptocurrency in the UK

  1. Take advantage of tax-free thresholds
  2. Harvest your losses (and offset your gains)
  3. Use the trading and property tax break
  4. Invest crypto into a pension fund
  5. Make a crypto donation
  6. Gift crypto to your significant other
  7. Invest in an EIS or SITR
  8. Use Koinly to spot unrealised losses

Remember, you need optimise your taxes ahead of the end of the financial year (5th April), otherwise it will count towards the new financial year.

Take advantage of tax-free thresholds

To begin, there’s good news. As a UK resident, you only have to pay Capital Gains Tax on your overall gains above your tax-free allowance of £12,300 (the Annual Exempt Amount). However, this is set to drop to £6,000 from April 2023 and down to £3,000 from April 2024 - so make the most of the higher allowance ahead of the end of the 2022-2023 financial year while you still can. 

Are you staring at the possibility of a crypto income tax bill this financial year? In addition to the CGT allowance, most crypto taxpayers in the UK can make use of the standard Personal Allowance is £12,570, which is tax-free income. Those earning more than £125,140 do not receive a personal allowance; your allowance is reduced if you earn more than £100,000. Knowing the tax-free maximums available to you is a great way to determine your crypto disposal strategy.

Harvest your losses (and offset your gains)

You only ‘realise’ a capital loss when you sell, trade, spend or gift your crypto. But before that point, if the price of your crypto has decreased since you bought it, you’ll have unrealised losses. If you know you’re facing a large tax bill and you’ve got some duds in your portfolio - it can be beneficial (from a tax perspective) to harvest them by selling at a loss. This is also known as tax loss harvesting.

It’s important to note wash sales are not permitted by HMRC. Wash sales involve selling for a loss before immediately repurchasing the same token - creating an artificial loss in the process.

You can use a crypto portfolio tracker (like Koinly) to track these unrealised losses throughout the financial year and later harvest and offset against your gains ahead of the end of the financial year to minimise your taxes.

Use the trading and property tax break

If you earn less than £1,000 in income from crypto or other means, you don't need to declare it to HMRC. Every UK taxpayer gets a tax-free allowance of £1,000 on trading and property. You’ll have a £2,000 allowance if you're investing in both. Tax-free thresholds are an easy way to avoid paying crypto tax, especially if you only have small amounts invested.

Invest crypto into a pension fund

Wondering if you can hold cryptocurrency investments in a SIPP or ISA? Will crypto invested in a pension fund bring you welcome tax relief? In the UK, it's a possibility - although it's not necessarily a straightforward process and is something to check with your financial advisor.

Make a crypto donation

Yes, your cryptocurrency donations are tax deductible in the UK! If you don’t need all of the profit from your crypto investment, you can lower your capital gains tax burden by donating some of your crypto to charity. You’ll get a deduction worth the full value of your crypto, including any capital gains - provided the charity is registered, and the donation is not made to someone connected to the donor, set to receive a financial advantage directly or indirectly from the charity.

Gift crypto to your significant other

Coupled up? Transfers between spouses in the UK are currently exempt from CGT under a tax-free gift loophole.

This means that the ownership of assets can be transferred between partners so that both of your annual CGT allowances can be combined and used against gains. This effectively doubles the CGT allowance for married couples and civil partners to £24,600 (until April 2023). As per HMRC, to use this benefit, you can't be separated or live apart from each other.

The transfer is said to occur at 'no gain, no loss' because the recipient inherits the base cost of the asset being transferred.

Even if you’re over the CGT allowance if your partner is in a lower Income Tax band than you are, gifting crypto to allow them to make the disposal may still benefit you as they may be in a lower Capital Gains Tax band.

Invest in an EIS or SITR

Another tax loophole in order to avoid paying tax on your crypto in the UK is by deferring a portion of your crypto tax bill by investing in one of two government schemes. Gains made on investments in an Enterprise Investment Scheme (EIS) and Social Investment Tax Relief (SITR) are free from CGT if held for three or more years.

Use a crypto tax calculator to spot unrealised losses

It's unlikely you'll be able to spot all crypto tax-reducing opportunities, especially if you don't know how your portfolio is looking. HMRC recommends that crypto investors use a crypto tax calculator like Koinly to pay the right amount at tax time. But crypto tax software is just as good at helping you to pay less crypto tax - especially when you use it strategically.

For example, say you've got a high Capital Gains Tax bill on the horizon. Jump into your portfolio dashboard on Koinly and look at your unrealised crypto losses.

Following the recent bear market, you may have crypto holdings that are underperforming or sitting at a loss. In situations where you realise losses (by selling), these losses can be offset against your capital gains to reduce your tax liability - and Koinly makes this easy.

Want to learn more about crypto taxes in the UK? Check out our UK Crypto Tax Guide.

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