Crypto and CGT
Discussion
Suppose Alice and Bob buy a single BTC from their joint bank account, let's assume it was a while ago so they now have some profit and also that KYC was not really a thing then - i.e. they did not open a coinbase (or other) account in Alice or Bobs name.
They hold it for many years and then sell the BTC and start thinking about the CGT implications.
Keeping the numbers easy, they bought for £1K and sell for £31K, so their profit is £30K.
Are they deemed to own 0.5 BTC each for CGT purposes?
i.e. they have £15K profit each, less their annual allowance of £12,300, so £2,700 each which they owe CGT on.
Or does it work differently to that?
They hold it for many years and then sell the BTC and start thinking about the CGT implications.
Keeping the numbers easy, they bought for £1K and sell for £31K, so their profit is £30K.
Are they deemed to own 0.5 BTC each for CGT purposes?
i.e. they have £15K profit each, less their annual allowance of £12,300, so £2,700 each which they owe CGT on.
Or does it work differently to that?
The HMRC website is poor.
What about the hard splits? How do you apportion value?
What about activity pre HMRC guidance?
Iirc all splits were pre-rules?
If you genuinely have two CGT allowances and £30,000...
I’d just sell half now and half in April. Spread over 2 tax year allowances you can simply not declare it or have to calculate it as it clearly lays under the threshold.
Alternatively. If you can get values for points in time.
If you or your wife bought it all originally for £1,000, and the day before rules were applied you transferred it all to wife, or wife to you, at a higher value than bought for (wasn’t it high when rules came in?) then that transfer wouldn’t need to be documented, but would form the value for this years cap gains exposure.
So £1000 > £5000 in value day before rules = £4000 gain, no issues (assuming no other gains that year)
You can then have another undocumented capital gain any time later (as until the last three months, or in dec17, any 1btc transaction would’ve fit into an annual allowance), preferably at a beneficial time on the capital value.
Ie, you then split it to you and wife at £8,000 in jan 20, previous tax year, no cap gains, no need to declare. Just write a rough note?
Now you have £8,000 > £30,000 = £22,000 gain = £11,000 each. Which can fit in the 20/21 year.
Let’s say you have 2btc really, you can still use this approach I think.
To be clear.
I’m not sure if you’d have to move btc to price a change in ownership. But that’d incur costs.
Ownership is merely knowing the priv keys, so assuming you share access to them I can’t see an issue in transferring ownership that way.
Also not sure if you were transferring half you’d need it in two different addresses, again I’m not sure you could say that was a thing.
It seems the main rules are that you deal with this like share ownership, so just apply those rules from the date required... and apply a history to the btc you have to optimise the tax position using some appropriate documents between you and wife to say what happened at various dates.
I’m not an accountant. Just been doing this thinking myself.
Sadly my activity this tax year which would have fit in CGT allowance won’t now, do I have a real mess to unpick... both my wife and I made a gain so no escape using the potential route above haha.
Personally I’d rather just pay 20pc on the gains flat because the complexity of calculating it properly will cost more than the gain in my case.
What about the hard splits? How do you apportion value?
What about activity pre HMRC guidance?
Iirc all splits were pre-rules?
If you genuinely have two CGT allowances and £30,000...
I’d just sell half now and half in April. Spread over 2 tax year allowances you can simply not declare it or have to calculate it as it clearly lays under the threshold.
Alternatively. If you can get values for points in time.
If you or your wife bought it all originally for £1,000, and the day before rules were applied you transferred it all to wife, or wife to you, at a higher value than bought for (wasn’t it high when rules came in?) then that transfer wouldn’t need to be documented, but would form the value for this years cap gains exposure.
So £1000 > £5000 in value day before rules = £4000 gain, no issues (assuming no other gains that year)
You can then have another undocumented capital gain any time later (as until the last three months, or in dec17, any 1btc transaction would’ve fit into an annual allowance), preferably at a beneficial time on the capital value.
Ie, you then split it to you and wife at £8,000 in jan 20, previous tax year, no cap gains, no need to declare. Just write a rough note?
Now you have £8,000 > £30,000 = £22,000 gain = £11,000 each. Which can fit in the 20/21 year.
Let’s say you have 2btc really, you can still use this approach I think.
To be clear.
I’m not sure if you’d have to move btc to price a change in ownership. But that’d incur costs.
Ownership is merely knowing the priv keys, so assuming you share access to them I can’t see an issue in transferring ownership that way.
Also not sure if you were transferring half you’d need it in two different addresses, again I’m not sure you could say that was a thing.
It seems the main rules are that you deal with this like share ownership, so just apply those rules from the date required... and apply a history to the btc you have to optimise the tax position using some appropriate documents between you and wife to say what happened at various dates.
I’m not an accountant. Just been doing this thinking myself.
Sadly my activity this tax year which would have fit in CGT allowance won’t now, do I have a real mess to unpick... both my wife and I made a gain so no escape using the potential route above haha.
Personally I’d rather just pay 20pc on the gains flat because the complexity of calculating it properly will cost more than the gain in my case.
Thanks, I agree the splits etc make it more complex, that is what I wanted to focus on the who owns the BTC aspect.
Unfortunately my wife and I are not the subject here, I'm just interested how it would work.
I agree 100% on treating the whole sale as the gain, as you say it makes the liability calculation a lot simpler and it makes more sense the longer you have held, for some people their cost price is £100s.
Interesting on the keys/accounts, crypto is always held on multiple addresses but these can be derived from the same key or a different one so I'm not sure it helps establish who owns the BTC.
Unfortunately my wife and I are not the subject here, I'm just interested how it would work.
I agree 100% on treating the whole sale as the gain, as you say it makes the liability calculation a lot simpler and it makes more sense the longer you have held, for some people their cost price is £100s.
Interesting on the keys/accounts, crypto is always held on multiple addresses but these can be derived from the same key or a different one so I'm not sure it helps establish who owns the BTC.
Mr Whippy said:
I’d rather just pay 20pc on the gains flat because the complexity of calculating it properly will cost more than the gain in my case.
So why not just do it that way? I can’t see any point getting into hugely complex calculations for a small amount of tax you might otherwise overpay. I try to keep things simple and then err on the side of caution so that tax is never underpaid. I’ve no idea what proportion of submitted CGT calculations are actually looked at, let alone checked, by HMRC but I can’t imagine it’s very many, especially the small ones. The cost to them of doing so and then following up would be disproportionate.rockin said:
Mr Whippy said:
I’d rather just pay 20pc on the gains flat because the complexity of calculating it properly will cost more than the gain in my case.
So why not just do it that way? I can’t see any point getting into hugely complex calculations for a small amount of tax you might otherwise overpay. I try to keep things simple and then err on the side of caution so that tax is never underpaid. I’ve no idea what proportion of submitted CGT calculations are actually looked at, let alone checked, by HMRC but I can’t imagine it’s very many, especially the small ones. The cost to them of doing so and then following up would be disproportionate.In theory if you assume you started at £0 for the asset then there is no calc as it’s all gain.
It’s just the ‘split’ in crypto that cause some ambiguity and even HMRC aren’t clear on this, but again if you start at zero then all splits get zero notional value... still ambiguity.
What a flipping mess.
I can’t see why just paying on all gains as if you started at zero is an issue.
Even if it goes to £1,000,000/btc the difference in gain tax is still just tiny vs cost of dealing with calcs... I think
I’ll talk again with a few more accountants and go from there.
rockin said:
So why not just do it that way? I can’t see any point getting into hugely complex calculations for a small amount of tax you might otherwise overpay. I try to keep things simple and then err on the side of caution so that tax is never underpaid. I’ve no idea what proportion of submitted CGT calculations are actually looked at, let alone checked, by HMRC but I can’t imagine it’s very many, especially the small ones. The cost to them of doing so and then following up would be disproportionate.
That's the "I don't really know if I'm doing it right or not but who cares because HMRC never looks at it" point of view.A rather dangerous approach, I would say.
When is a capital gain on a crypto currency crystalised?
Eric Mc said:
That's the "I don't really know if I'm doing it right or not but who cares because HMRC never looks at it" point of view.
A rather dangerous approach, I would say.
When is a capital gain on a crypto currency crystalised?
If you're knowingly over declaring the gain because working out what you can deduct as the base cost is too complicated/expensive then is there really an issue?A rather dangerous approach, I would say.
When is a capital gain on a crypto currency crystalised?
HootersGsy said:
Just looked it up, I never realised there were penalties calculated on tax overpaid due to a deliberately incorrect return!
Penalties can be charged based on how "careless" or "reckless" a person was when entering the information on the return.Penalties can, of course, also be levied for failure to submit a return when one was due.
In both cases,these types of penalties are not based on any actual tax shortfall. However, if there is a tax shortfall, the penalties are generally higher. They can be as high as the underpaid tax.
Underpaid tax and non-payment of tax will also result in interest charges.
HootersGsy said:
Eric Mc said:
Submitting incorrect tax forms - whatever the end result is, is actually illegal.
Just looked it up, I never realised there were penalties calculated on tax overpaid due to a deliberately incorrect return!"HMRC has the power to fine you if you submit incorrect information and pay too little tax; you can’t be fined if you overpay due to an error."
Read more: https://www.which.co.uk/news/2019/01/one-in-six-ov...
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