The HMRC classifies cryptocurrency as property and not currency for tax reasons. How is Capital Gains Tax charged on cryptocurrency profits in the UK and what is the present tax free allowance?

HMRC does not consider crypto currency as currency, but rather an asset that is comparable to stocks and real estate. This implies that any gains realized from selling, trading, or even using it will be liable for capital gains tax, where each individual enjoys an exempt limit of £3,000 before being liable for CGT which will be taxed at 18% or 24% based on income.

Many people fall into this trap due to the misconception that tax is payable when the cryptocurrency is cashed out in terms of pounds; however, HMRC regards any exchange of one cryptocurrency to another as a taxable disposal.

When you sale, exchange or gift of cryptocurrencies, HMRC will be keen to establish whether you made any gain. The rates are set at 18% or 24%, and with the tax allowance being so low these days, you could find yourself paying some tax, even if you are an amateur investor.

It’s easy to overlook the fact that crypto tax isn’t just about Capital Gains Tax. Should you earn cryptocurrency through staking, mining or in form of airdrops this will always be treated as income. However when trading CGT is what applies.