Let's face it. Nobody likes paying tax. We've put together a few strategies to help you optimise your tax position - don’t hang about act by the 5th April!
Are you holding assets which have lost value? Sell your assets before 5th April and realise a loss on those assets for the 2019/2020 tax year, these losses will offset other gains, or can be carried forward for future tax years.
In the 2020/2021 tax year, you can re-acquire your assets. However, you should wait 30 days to work around the HMRC's 30-day rule or consider buying an alternative cryptocurrency to the one you have sold. The 30-day rule prevents users from selling assets and repurchasing them in a very short period of time, potentially allowing an individual to utilise their capital gains tax annual exemption allowance to reset the base cost of their assets at a higher value. Future gains would then be based on the new price. The 30-day rule only applies to assets of the same class, so instead of waiting 30 days to repurchase the assets you have sold, you could buy an alternative cryptocurrency asset - ideally one which is highly correlated to the price of the original asset.
Bought 1 BTC for £10,000 in 2017. Sell 1 BTC for £5000 2nd April and realise a £5000 loss for your 2019/2020 tax return.
Option 1: Wait 30 days from 2nd April, (after 3th May) and re-buy the 1 BTC. If the Bitcoin price is below £10k, you've successfully got yourself a bargain and realised £5000 in losses 2019/2020.
Option 2: Immediately after selling your 1 BTC for £5000, buy 15 ETH with the £5000. The sale of the 1 BTC realises a loss of £5000 and the acquisition of ETH also allows you to maintain holding a position in the cryptocurrency market. Instead of selling 1 BTC to £5000, you could also swap 1 BTC for ETH directly, which would realise the £5000 loss and acquire the ETH in 1 transaction.
For the 2019/2020 tax year, individuals will have a £12,000 capital gains tax annual exemption. You can make use of this allowance by selling enough of your assets to make a £12,000 profit without paying any tax. Another approach is to use your annual exemption to realise a £12,000 gain, and re-acquire your assets to reset the base costs of your cryptocurrency higher, meaning future disposals will yield less tax. Here you still have to consider the 30-day rule as above, but this only applies to assets of the same class, so instead of waiting 30 days to repurchase the assets you have sold, you could buy an alternative cryptocurrency asset - ideally one which is highly correlated to the price of the original asset.
Bought 2 BTC for £5000 in 2016. Sell 2 BTC 2nd April 2020 for £17,000 and realise a £12,000 gain.
Option 1: Cash-out the £12,000 gain tax free.
Option 2: Use the £12,000 gain, wait 30 days and re-acquire your BTC. If the Bitcoin price is less than what you sold it for you have reset the base cost of your BTC higher.
Option 3: Immediately after selling your 2 BTC for £17,000 (proceeds), buy ETH with the £12,000 gain. The sale of the 2 BTC realises a gain of £12,000 and the acquisition of ETH allows you to maintain holding a position in the cryptocurrency market. Instead of selling 2 BTC for £17,000, you could also swap 2 BTC for ETH directly, which would realise the £12,000 gain and acquire the ETH in 1 transaction.
If you are married or in a civil partnership, after you have used your annual exemption allowance, you could transfer assets to your spouse or civil partner, who can then make use of their annual allowance.
Keeping an audit trail of what you have transferred to your spouse is important. If you gift your spouse or civil partner a cryptoasset the cost basis moves from you to them. Your spouse or partner will need to use that cost basis for their calculations when disposing of their cryptocurrency. Your spouse or civil partner should also trade on their cryptocurrency exchange account as you will then have separate records for auditing purposes.
Husband gifts 1 BTC of which he acquired for £1000 in 2016 to his wife. The cost basis of £1000 moves to the wife, when she sells the 1 BTC for £5000, the cost basis of £1000 is used to determine the profit of £4000.
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Disclaimer: This article is intended as an informative piece. This is not accounting or tax advice. Please speak to a qualified tax professional about your specific circumstances before acting upon any of the information in this article.