UK Specific Crypto Tax Classifications, in general, are not that easy to understand and there are different regulations and exceptions. The worst part is that you have to do it once a year and forgot everything since the last time you filled your return.
When it comes to UK-specific crypto tax classifications , there’s not only the individual person that struggles with the regulations but also the government itself or even experienced CPAs.
The reason is that this space is growing so fast, allowing investors to use every single investment vehicle that they can find in the old banking world but in a decentralized way and sometimes even optimized compared to the old world.
As a consequence, the government can’t keep up and probably has never heard about decentralized liquidity pools or some other new cool features that are being developed in the crypto ecosystem.
Incoming transactions / deposit: Classifications and their consequences
The following UK-specific crypto tax classifications describe how deposits get treated in the Tax Report in terms of taxable or not taxable and how their cost basis gets calculated. You will find the statement for the Incoming transactions in the FullTaxReport.pdf and in the Fulldataset.xls export they are either summed up in the Taxable income table or the non-taxable income table depending on their classification.
The cost basis is defined by the type as well, if you acquired the asset in a trade (e.g. swap, buy, otc,…) Accointing defines the cost basis with the value of the sell side of this trade. If you received the asset as for example an Airdrop Accointing will define the cost basis based on the price the asset has at the receiving date.
The HMRC defines an Airdrop as a taxable income if you had to work for the airdrop. In case you just received the Airdrop without doing anything for it, it is handled as a non taxable income.
|
Classification type (incoming transaction) |
Taxable or not taxable? | Definition of Cost basis |
| No classification | Taxable income | Value of the receiving date. |
| Buy trade (incoming side) | Not taxable | Proceeds of the sell side |
| OTC trade (incoming side) | Not taxable | Proceeds of the sell side |
| ICO trade (incoming side) | Not taxable | Proceeds of the sell side |
| Hardfork | Taxable income | Value of the receiving date. |
| Airdrop (only taxable when you worked for it) | Not taxable | Value of the receiving date. |
| Mining (as a hobby)* | Taxable income | Value of the receiving date. |
| Bounty | Taxable income | Value of the receiving date. |
| Masternode income | Taxable income | Value of the receiving date. |
| Staking Income | Taxable income | Value of the receiving date. |
| Received gift | Not taxable | Value of the receiving date. |
| Swap (Incoming) | Not taxable | Value of the receiving date.(if there is an amount on the sell side, you can select it as OTC and use the proceeds from the sell side) |
| Income from gambling | Taxable income | Value of the receiving date. |
| Add funds | Not taxable | Value of the receiving date. |
| Income (for a service) | Taxable income | Value of the receiving date. |
| Liquidity pool income | Taxable income | Value of the receiving date. |
| Reconcile | Taxable income | Value of the receiving date. |
| Lending Income | Taxable income | Value of the receiving date. |
| Margin gain | Taxable margin trade income (separate table in the report) | Value of the receiving date. |
Definition of the taxable or not taxable event created by deposit classifications
*if you do mining as a business you can offset costs (electricity, etc.) from the mining income. If you receive tokens from mining and are not trading, the tokens will be treated as other taxable income.
Withdraws or sell actions create disposals – those are either taxable or non-taxable depending on the classification of the outgoing transaction.
This is a really important section of the UK specific crypto tax classifications. There are countries where the incoming and outgoing transactions define as a combination if the transaction is seen as taxable or non-taxable.
In the UK it’s relatively easy, here it is only important how the asset got disposed (sold, withdrawn). You will find the different UK-specific crypto tax classifications types and consequences in the following table.
The margin losses and margin fees are all summed up together with the margin gains in the fulltaxreport.pdf and use the proceeds of the transaction date to define the gains. They don’t create taxable disposals, meaning when a tax lot gets closed because of a margin loss or fee it will create a non-taxable disposal in the export files.
Transactions fees of internal transactions (e.g. from your exchange to your wallet) will show up in the Full tax report pdf summed up in a separate table.
UK-specific crypto tax classifications
| Classification type (outgoing transaction) |
Taxable or not taxable? | Definition of Cost basis | Summed up in |
| No classification | Taxable Disposal | Proceeds: Value at the date Cost basis: HMRC pooling | Taxable disposal as capital gains in full tax report |
| Sell trade | Taxable Disposal | Proceeds: Value at the date Cost basis: HMRC pooling | Taxable disposal as capital gains in full tax report |
| OTC trade (sell side) | Taxable Disposal | Proceeds: Value at the date Cost basis: HMRC pooling | Taxable disposal as capital gains in full tax report |
| ICO trade (sell side) | Taxable Disposal | Proceeds: Value at the date Cost basis: HMRC pooling | Taxable disposal as capital gains in full tax report |
| Swap (sell side) | Taxable Disposal | Proceeds: Value at the date Cost basis: HMRC pooling | Taxable disposal as capital gains in full tax report |
| Payment (outgoing transfer to someone else) | Taxable Disposal | Proceeds: Value at the date Cost basis: HMRC pooling | Taxable disposal as capital gains in full tax report |
| Used for gambling | Taxable Disposal | Proceeds: Value at the date Cost basis: HMRC pooling | Taxable disposal as capital gains in full tax report |
| Gift sent* | Taxable Disposal | Proceeds: Value at the date Cost basis: HMRC pooling | Non taxable disposal in full tax report |
| Lost** | Not taxable disposal | Proceeds: Value at the date Cost basis: HMRC pooling | Non taxable disposal in full tax report |
| Remove funds | Not taxable disposal | Proceeds: Value at the date Cost basis: HMRC pooling | Non taxable disposal in full tax report |
| Reconcile | Taxable Disposal | Proceeds: Value at the date Cost basis: HMRC pooling | Taxable disposal as capital gains in full tax report |
| Fee | Taxable Disposal | Proceeds: Value at the date Cost basis: HMRC pooling | Taxable disposal as capital gains in full tax report |
| Interest paid | Taxable Disposal | Proceeds: Value at the date Cost basis: HMRC pooling | Taxable disposal as capital gains in full tax report |
| Margin loss | No disposal tax, but proceeds summed up in margin table | Proceeds: Value at the date | Non taxable disposal in Full tax report and taxable loss in Margin table |
| Margin fee | No disposal tax, but proceeds summed up in margin table | Proceeds: Value at the date | Non taxable disposal in Full tax report and taxable loss in Margin table |
Definition of the taxable or not taxable event created by withdraw classifications
* unless it’s a gift to your spouse or civil partner. If thats the case, classify it as “Remove funds”
** If the coin goes to 0, you can offset this loss but if you lose it / or it gets hacked you can’t easily claim a loss. You will have to argue with the HMRC if they accept this as a loss or not. It makes sense to talk to a tax expert for this.