Capital Gains Tax

Robert G. Allen

"How many millionaires do you know who have become wealthy by investing in savings accounts? I rest my case."

What is Capital Gains Tax?

Capital Gains Tax (CGT) is a tax on the profit (known as a gain) made when you sell or otherwise dispose of an asset.

Only the gain, not the proceeds, is taxed.

EXAMPLE : If you bought Rio Tinto shares in May 2012 for £8,500 and sold the shares in September 2023 for £13,200 your basic gain would be £4,700.

For CGT purposes you are considered to have disposed of an asset when you cease to own it. This includes if you:

• sell it

• make a gift of it

• transfer it to someone else

• exchange it for something else

• receive compensation for it

Not every disposal attracts CGT. For example -

• when somebody dies and their assets pass to their personal representatives or

• where shares are disposed of in exchange for other shares (and HMRC approval is obtained).

The rate of CGT is either 10%, 18%, 20% or 28%, depending on your total income in the year of disposal and the type of gains. The 28% rate reduces to 24% from April 5, 2024 for gains on residential property.

Do I need to include the gain on my tax return?

If you have capital gains, you may have to fill in the capital gains pages. You do not have to fill them in if the total disposal proceeds in the 2023/24 tax year were less than £50,000 and your chargeable gains (before losses) were below £6,000.

You must also complete the CGT pages if you want to claim an allowable loss.

Am I liable to CGT if I am not UK tax resident?

You must pay CGT on all your chargeable gains if you are tax resident in the UK.

If you are non-domiciled and claiming the remittance basis of taxation then gains on non-UK assets can be excluded.

Anyone who is not UK tax resident is chargeable on gains arising from a UK residential property or UK land. The gains arising from April 2015 are chargeable and there are alternative methods available to calculate the gain.

If you leave the UK you are still potentially liable for CGT for up to 5 years on assets which were held at the time of leaving the UK. This applies to all assets, not just land and property. If you sell those assets while non-resident you will only pay CGT on the gains if you return to the UK and become UK tax resident within the five year period. The gains become chargeble in your year of return to the UK.

In certain circumstances you may not have to pay CGT on gains arising on assets abroad if you are UK tax resident but not domiciled in the UK.

Online Disclosure of Gains from UK Land and Property

Capital gains arising on the sale of UK residential property or land must be disclosed to HMRC within 60 days of the sale date and any CGT must be paid by the same date.

Details of how to report and pay the CGT are at

https://www.gov.uk/capital-gains-tax/reporting-and-paying-capital-gains-tax

If you require assistance calculating the reportable gain or making the online report to HMRC, contact us.

What assets attract CGT?

Most assets, tangible or otherwise, which are capital in nature are likely to give rise to a capital gain or loss on disposal. Some common examples are -

• Shares

• Land and Buildings

• Business assets, such as goodwill

The following are the most common assets which are exempt from CGT -

• private cars

• personal effects worth £6,000 or less (chattels)

• Savings certificates, Premium Bonds and British Savings Bonds

• gains made within a Personal Equity Plan (PEP)

• bonuses from tax exempt special savings accounts (TESSAs)

• UK government stocks (gilts)

• personal injury compensation

• foreign currency for you or your family's personal use

• life assurance policies and deferred annuity contracts, unless purchased from a third party.

• betting, lottery or pools winnings

• SAYE terminal bonuses

• compensation for mis-sold pensions taken out as result of disadvantageous advice given between 29 April 1988 and 30 June 1994

• any asset whose disposal is chargeable to income tax (such as some share options)

Need Help?

Do you need help with any of the issues discussed on this page?

If you need assistance with UK tax filing we can complete and file a return for you with all tax calculations taken care of.

We can agree a fixed fee in advance.

Trading or not Trading?

In most cases, cryptoassets are held as a personal investment and capital gains tax applies on the disposal of the cryptoasset.

A liability to income tax and national insurance contributions will arise where cryptoassets are received from :

• an employer as a form of non-cash payment

• mining, transaction confirmation or airdrops

If an individual is running a business which is carrying on a financial trade in cryptoassets they will have taxable trading profits chargeable to income tax.

The question whether cryptoasset activities amount to trading depends on individual circumstances. If the activity does not amount to trading the activity will be one of investment and CGT will apply.

Gains Chargeable to CGT

What is an asset?

Tokens are digital and therefore intangible, but count as a ‘chargeable asset’ for CGT if they are :

• capable of being owned

• have a value that can be realised

What is a disposal?

A ‘disposal’ includes :

• selling tokens for money

• exchanging tokens for a different type of token

• using tokens to pay for goods or services

• giving away tokens to another person

There is no disposal if you retain ownership of the tokens throughout the transaction - for example moving tokens between wallets / public addresses that you control.

Using a mixer, tumbler or similar service and receiving the same type of tokens as you put into a transaction is not a disposal but it will be a disposal if you put one type of token into the transaction and receive a different type of token in return.

Transferring tokens between distributed ledgers - Swaps / Smart Contracts

Tokens cannot be transferred from the ledger for one cryptoasset to the ledger for a different cryptoasset (for exampke - a Bitcoin cannot exist on the Ethereum blockchain) so a ‘swap’ can be achieved using a smart contract.

Not all of these transfers will be a disposal for CGT purposes. Some transfers can only go in one direction, meaning that once the transfer has been made it cannot be undone or transferred back at a future date. HMRC’s view is that CGT applies to this type of transaction.

Allowable Expenses

Where an allowable cost relates to more than one asset, the cost should be apportioned between the assets.

When calculating gains and losses from the disposal of tokens not all costs are allowable as a deduction for CGT. The allowable costs are :

• the consideration originally paid for the asset

• transaction fees paid for having the transaction included on the distributed ledger

• advertising for a purchaser or a vendor

• professional costs to draw up a contract for the acquisition or disposal of the tokens

• costs of making a valuation or apportionment to be able to calculate gains or losses

Where an exchange is used to complete transactions, some fees charged by exchanges are allowable, but not all of them. HMRC has a lst of the allowable exchange costs at the link below :

https://www.gov.uk/hmrc-internal-manuals/cryptoassets-manual/crypto22150

Mining

Costs for mining activities (for example equipment and electricity) do not count toward allowable CGT costs for the disposal of tokens but it may be possible to deduct some of these costs against profits for income tax purposes if a trade exists. The costs incurred to acquire equipment used for mining will usually be allowable as a deduction against the disposal of that equipment.

Capital Gains Tax Pooling

Pooling arrangements for CGT allows for simpler calculations. Pooling applies to shares and securities of companies and can also also apply to cryptoassets.

Where the nature of the tokens means they are dealt in without identifying the particular tokens being disposed of or acquired then the tokens should be pooled. Where this applies you treat the assets as a single pooled asset that will increase or decrease with each acquisition, part disposal or disposal. Each type of token will need its own pool - for example, bitcoin, ether and litecoin.

Non-Fungible Tokens (NFTs) are separately identifiable and so are not pooled and no matching rules are applied.

Same day rule

Where you make acquisitions and disposals of a particular type of tokens on the same day then the same day rules ensure that the maximum number of CGT computations needed for that token type is one per calendar day.

When tokens of the same type are acquired and disposed of on the same day then :

• all the tokens acquired shall be treated as acquired in a single transaction

• all the tokens disposed of shall be treated as disposed of in a single transaction

The tokens acquired will be matched with the tokens disposed of as far as possible, so that those tokens don’t go into the pool.

If the quantity of tokens acquired exceeds the number disposed of then the excess tokens will then be considered for the 30 day rule (see below) and if that doesn’t apply then they will go into the pool.

30 days rule

If you dispose of tokens and acquire tokens of the same type within the next 30 days then :

• the same day rule (see above) is applied first, then

• the tokens acquired to which the 30 day rule applies are matched to the earlier disposal of tokens

The tokens acquired to which the 30 day rule applies are matched to disposals on the basis of earliest disposal first and if the quantity of tokens acquired exceeds the number of tokens disposed of in the preceding 30 days then the excess tokens will go into the pool.

More guidance on the CGT and income tax rules for crypto assets can be found at the links below :

https://www.gov.uk/guidance/check-if-you-need-to-pay-tax-when-you-sell-cryptoassets

https://www.gov.uk/hmrc-internal-manuals/cryptoassets-manual

Are Crypto Gains Taxable?