crypto tax question

[minnow]

Hi all -

Wondered if anyone had any thoughts about the following case please ? It concerns the CGT treatment of crypto transfers. The type of transfer i'm thinking about does not change the beneficial owner. I'm merely shuffling coins between wallets that I own. The catch is that each transfer "costs" a certain amount of coins in transaction fees. So let's say, in the extreme case, I send 10 coins from wallet A to wallet B (including 1 coin in fees). Wallet B therefore receives only 9 coins.

What has happened here from a tax perspective ? I've got two conflicting answers.

According to HMRC's CRYPTO22100 guidance, "There is no disposal if the individual retains beneficial ownership of the tokens throughout the transaction, for example moving tokens between public addresses that the individual beneficially controls". That suggests no CGT is payable.

But according to CRYPTO22280, "Most cryptoasset transactions require the person disposing of the tokens to pay a fee. This fee will often be satisfied in tokens. If the transaction fee is satisfied in tokens... you also need to consider the fee as a disposal in its own right."

So, although in my hypothetical example I am not disposing of any coins (merely moving them between wallets I own), I *am* paying a fee in the form of crypto tokens, and 22280 suggests that the mere act of paying the fee triggers a small disposal (hence reportable for CGT).

To go one step further, if paying the fee really does trigger a disposal, can I then adjust the original "acquisition costs" of my crypto to reflect the fact that I had to pay 1 coin in fees ?

I'm very confused ! Opinions much appreciated, thank you

[Urbandreamer]

What has happened here from a tax perspective ? I've got two conflicting answers.

According to HMRC's CRYPTO22100 guidance, "There is no disposal if the individual retains beneficial ownership of the tokens throughout the transaction, for example moving tokens between public addresses that the individual beneficially controls". That suggests no CGT is payable.

But according to CRYPTO22280, "Most cryptoasset transactions require the person disposing of the tokens to pay a fee. This fee will often be satisfied in tokens. If the transaction fee is satisfied in tokens... you also need to consider the fee as a disposal in its own right."

...
I'm very confused ! Opinions much appreciated, thank you

I have not read the documents that you reference, but there is tax and tax.
I would believe that no CGT would be payable, though the fee would constitute a cost that could/should be taken into account when the remaining crypto is sold for fiat.
This would be the case where the crypto to be yours or owned by another who's affairs you were managing. However, were you to be managing someone else's affairs, then you would be providing a service upon which VAT might be charged.

FWIW, I try to keep good records of all such events, including initial exchange of £'s to $'s and then later $'s to BTC, bitcoin fees for purchase, disposal (buying a product) and the fees that I pay for such. I have no current need to do so as CGT is unlikely to be an issue, but were it to become so, the information would exist.

[Urbandreamer]

I have just read CRYPTO22280.

As I read, It only comes into account upon selling for something else. Ie buying eth with btc.

CGT is upon gains, after costs.
Fees are a cost (hence CGT is reduced by the fee).
The gain is the difference between the fiat value of what is received and the average fiat purchase cost, less fees.
Two calculations will need to be made if the fee is in a different currency/token. Ie one for the crypto sold and one for the cost charged in a different crypto.

A mention is made of the 30 day rule. Selling and buying the same thing back within 30 days is not considered a disposal, hence no CGT calculation is needed. However, a cost is incurred, which will affect your later gain. You are entitled to offset costs against gains.
The effect of fees to transfer between wallets is to increase the average cost of the remaining crypto.

What happens if you ignore most of this? Well, provided HMRC believes that you are being open and above board, they may just accept that you are overpaying your tax. An investigation would be costly though, so I recommend keeping good records.

I find Mempool invaluable to provide information upon fee's, time and date. I record the transaction ID in my spreadsheet.
I also don't trade between crypto.

Finally, remember your CGT exemption. Keep track of things and you may never have to provide a CGT calculation, as no tax would be due.

[minnow]

Oops, just saw this reply. Thanks UrbanD ! Would you agree with the following ?

Let's say I acquired 10 coins for £1000 each, total cost = 10K. I then transfer the coins to another wallet, paying 1 coin in network fees (and let's assume that the market price had risen to £1500 by the time I did the transfer). Some time later, I sell the 9 remaining coins for £2000 each, for proceeds of 18K.

I think you can view this in one of two ways :

(1) : I paid 10K for coins that I later sold for 18K. Net gain = 8K, payable on the date I finally sell all the coins

(2) : On the date of the transfer, I realise an immediate gain of £500 (because I effectively just "sold" a coin for 1.5K that I originally bought for 1K). The base cost of my remaining 9 coins hasn't changed yet, it's still £9000. However, I then increase this base cost by the amount of the fee, taking it to 10.5K. When I finally sell the remaining coins, the net gain = 18K - 10.5 = 7.5K. So the total gain, across both transactions, is still 8K.

Would you agree with my numbers ?

thanks again !

btw -- a couple of days ago I raised a query with HMRC, they haven't responded yet but posting it here in case anyone's interested : https://community.hmrc.gov.uk/customerf ... 155d3ba57b

[GoSeigen]

Based on the information in your OP version 2 is more correct.

GS

[Urbandreamer]

Based on the information in your OP version 2 is more correct.

GS

I would agree with GS, with one important difference. Possibly for mathematical simplification no consideration has been given to your annual CGT allowance (currently £12.5K).
Given the numbers provided no Tax would be due, even if no consideration of costs were used. HMRC would not need to be informed, unless you regularly submit a tax return.

Edit (run out of time to word things well, but if you regularly submit a tax return you should include CGT gains and losses)

One Gotcha:

Assuming some different numbers ie you buy significantly more, but sell when the coins are not much higher in price.

You may have a gain of only £1. Far less than the CGT allowance, but have proceeds be more than 4* that allowance (currently £50k). HMRC would need to be informed, even though no tax was due. Fines and costs would be due if found out. If you don't regularly submit a tax return,the solution is a simple letter setting the situation and numbers out. No need to start submitting tax forms, unless you have other reasons or expect it to be a regular occurrence.

Keep good records and do simple math to find out if you need to do the more complicated sums.

If you have a year when you do dispose of coins (or change coins) do the sums at the end of the tax year and remove the result of the disposal from your cost and gain calculations. For most that will be enough. You could carry forward losses, but only if you inform HMRC of them. I would not regard it as worth the effort as I don't currently submit a tax return.

I intend managing my affairs in such a manner that I have no need to communicate with HMRC or pay CGT. I'm keeping the records in case events overtake me.

[scrumpyjack]

It is debatable, IMO, whether a fee for transferring crypto between your accounts is an allowable cost for CGT purposes. Normally only acquisition and disposal costs are allowable, custody charges and fees are not.

[Urbandreamer]

It is debatable, IMO, whether a fee for transferring crypto between your accounts is an allowable cost for CGT purposes. Normally only acquisition and disposal costs are allowable, custody charges and fees are not.

Thanks.

If you are right, then that makes my maths and record keeping a lot easier.

I believe that the confusion is caused because of the wording of CRYPTO22280 which clearly intends to cover the event of changing one crypto to another. It's not a disposal for fiat, like selling a share then buying a different one. It's an exchange, but obviously one that they wish to be able to tax.

Now what use to be the slogan? "Tax shouldn't be taxing".

It will be interesting to see if the HRMC forum query gets a response and what the response is.

[minnow]

Hello - OP here, I recently started thinking about this issue after a few months' break and I noticed that there have been a few more responses to the thread, thank you all.

After taking a fresh look at HMRC's guidance, I have also come to the conclusion that transfer fees probably shouldn't be considered allowable costs for a subsequent disposal. If the fee is paid as part of a sale, then certainly it should be treated as an allowable cost. But for merely shuffling coins between wallets ? I reckon I'd have a hard time arguing that position. Mapping this onto my earlier example :

Let's say I acquired 10 coins for £1000 each, total cost = 10K. I then transfer the coins to another wallet, paying 1 coin in network fees (and let's assume that the market price had risen to £1500 by the time I did the transfer). Some time later, I sell the 9 remaining coins for £2000 each, for proceeds of 18K.

I think that the correct way to look at this is :

= the transfer fee is treated as a disposal of 1 coin. Proceeds = 1500, cost = 1000, chargeable gain = 500
= the sale of the remaining 9 coins then generates a gain of 9K (= 18000 - 9000)
= total gain = 9.5K

Hope that all makes sense. Thanks once again for all the help.

[mjbdreamer]

Hi,

These guys blog about crypto, know their crypto, AND are tax experts: https://www.charltonbaker.co.uk/services/cryptoassets
DIsclaimer - I use them. Mention mjbdreamer for preferential treatment

In other news, hot off the press regarding DeFi and staking taxes:

https://www.gov.uk/government/consultat ... oassets--2

[1nvest]

Mid/longer term tax rate, 100%.

As Central Bank Digital Currencies become the only way to buy/spend, paper notes are withdrawn, so the state will have yet even further controls over its Open Prison populations. Be able to watch their movements, track their activities, control their money, such as forbidding the purchase of bitcoins (conversions between Btc and CBDC).

18th and 19th centuries and income taxes were a big no-no. People considered it to be too invasive against their privacy. Income tax was introduced as a temporary measure after WW2, but in having breached that privacy, so it was never removed. Similar for street cameras and online activities tracking, get introduced under the guise of anti-laundering/illicit activities prevention or whatever, but once established there's no going back.

I would urge the periodic use of hard cash/paper money to at least help slow the transition over to CDBC. As without moderate usage so one day the plug will simply be pulled on paper notes to leave only CDBC and the controls that yields the state.

[ursaminortaur]

Mid/longer term tax rate, 100%.

As Central Bank Digital Currencies become the only way to buy/spend, paper notes are withdrawn, so the state will have yet even further controls over its Open Prison populations. Be able to watch their movements, track their activities, control their money, such as forbidding the purchase of bitcoins (conversions between Btc and CBDC).

18th and 19th centuries and income taxes were a big no-no. People considered it to be too invasive against their privacy. Income tax was introduced as a temporary measure after WW2, but in having breached that privacy, so it was never removed.

In the UK income tax was first introduced by Pitt the Younger in 1798 but later abolished. However Peel reintroduced it in his 1842 budget and although it was supposed to be temporary it has remained ever since.


https://en.wikipedia.org/wiki/History_of_taxation_in_the_United_Kingdom#Income_tax

Income tax was first implemented in Great Britain by William Pitt the Younger in his budget of December 1798 to pay for weapons and equipment in preparation for the Napoleonic Wars. Pitt's new graduated (progressive) income tax began at a levy of 2 old pence in the pound (1⁄120th) on incomes over £60 (£6,719 as of 2021),[7] and increased up to a maximum of 2 shillings (10%) on incomes of over £200. Pitt hoped that the new income tax would raise £10 million, but actual receipts for 1799 totalled just over £6 million.[6]

19th century

Pitt's income tax was levied from 1799 to 1802, when it was abolished by Henry Addington during the Peace of Amiens. Addington had taken over as prime minister in 1801, after Pitt's resignation over Catholic Emancipation. The income tax was reintroduced by Addington in 1803 when hostilities recommenced, but it was again abolished in 1816, one year after the Battle of Waterloo.
.
.
.
Under Peel

The general election of 1841 was won by the Conservatives with Sir Robert Peel as Prime Minister. Although he had opposed the unpopular income tax during the campaign, an empty Exchequer and a growing deficit gave rise to the surprise return of the tax in his 1842 Budget. Peel sought only to tax those with incomes above £150 per annum, and he reduced customs duties on 750 articles out of a total number taxed of 1,200. The less wealthy benefited, and trade revived as a consequence.[9][10] Peel's income tax was 7d in the pound (about 3%). It was imposed for three years, with the possibility of a two-year extension. A funding crisis in the railways and increasing national expenditure ensured that it was maintained.



https://www.parliament.uk/about/living-heritage/transformingsociety/private-lives/taxation/overview/incometaxbolished/

By the early 1840s business opinion had moved considerably towards 'free trade' and the removal of high protective duties on imports and exports. Sir Robert Peel, the Prime Minister, was keen to facilitate this thinking. In 1842, therefore, he re-introduced income tax at 7d in the pound on incomes over £150. This allowed him to remove import and export duties on more than 700 items.

The reimposition of the tax - this time as a peacetime measure - was only meant to be temporary. But the increasing cost of government commitments, pushed up by the Crimean War of 1853-56, made this an increasingly remote prospect. Income tax has remained ever since.

[1nvest]

Mid/longer term tax rate, 100%.

As Central Bank Digital Currencies become the only way to buy/spend, paper notes are withdrawn, so the state will have yet even further controls over its Open Prison populations. Be able to watch their movements, track their activities, control their money, such as forbidding the purchase of bitcoins (conversions between Btc and CBDC).

18th and 19th centuries and income taxes were a big no-no. People considered it to be too invasive against their privacy. Income tax was introduced as a temporary measure after WW2, but in having breached that privacy, so it was never removed.

In the UK income tax was first introduced by Pitt the Younger in 1798 but later abolished. However Peel reintroduced it in his 1842 budget and although it was supposed to be temporary it has remained ever since.


https://en.wikipedia.org/wiki/History_of_taxation_in_the_United_Kingdom#Income_tax

Income tax was first implemented in Great Britain by William Pitt the Younger in his budget of December 1798 to pay for weapons and equipment in preparation for the Napoleonic Wars. Pitt's new graduated (progressive) income tax began at a levy of 2 old pence in the pound (1⁄120th) on incomes over £60 (£6,719 as of 2021),[7] and increased up to a maximum of 2 shillings (10%) on incomes of over £200. Pitt hoped that the new income tax would raise £10 million, but actual receipts for 1799 totalled just over £6 million.[6]

19th century

Pitt's income tax was levied from 1799 to 1802, when it was abolished by Henry Addington during the Peace of Amiens. Addington had taken over as prime minister in 1801, after Pitt's resignation over Catholic Emancipation. The income tax was reintroduced by Addington in 1803 when hostilities recommenced, but it was again abolished in 1816, one year after the Battle of Waterloo.
.
.
.
Under Peel

The general election of 1841 was won by the Conservatives with Sir Robert Peel as Prime Minister. Although he had opposed the unpopular income tax during the campaign, an empty Exchequer and a growing deficit gave rise to the surprise return of the tax in his 1842 Budget. Peel sought only to tax those with incomes above £150 per annum, and he reduced customs duties on 750 articles out of a total number taxed of 1,200. The less wealthy benefited, and trade revived as a consequence.[9][10] Peel's income tax was 7d in the pound (about 3%). It was imposed for three years, with the possibility of a two-year extension. A funding crisis in the railways and increasing national expenditure ensured that it was maintained.



https://www.parliament.uk/about/living-heritage/transformingsociety/private-lives/taxation/overview/incometaxbolished/

By the early 1840s business opinion had moved considerably towards 'free trade' and the removal of high protective duties on imports and exports. Sir Robert Peel, the Prime Minister, was keen to facilitate this thinking. In 1842, therefore, he re-introduced income tax at 7d in the pound on incomes over £150. This allowed him to remove import and export duties on more than 700 items.

The reimposition of the tax - this time as a peacetime measure - was only meant to be temporary. But the increasing cost of government commitments, pushed up by the Crimean War of 1853-56, made this an increasingly remote prospect. Income tax has remained ever since.

IIRC only around 4 million families were paying income tax pre WW2, pub landlords and the likes. Was broadly considered and is a invasion of privacy.

[ursaminortaur]

In the UK income tax was first introduced by Pitt the Younger in 1798 but later abolished. However Peel reintroduced it in his 1842 budget and although it was supposed to be temporary it has remained ever since.


https://en.wikipedia.org/wiki/History_of_taxation_in_the_United_Kingdom#Income_tax

Income tax was first implemented in Great Britain by William Pitt the Younger in his budget of December 1798 to pay for weapons and equipment in preparation for the Napoleonic Wars. Pitt's new graduated (progressive) income tax began at a levy of 2 old pence in the pound (1⁄120th) on incomes over £60 (£6,719 as of 2021),[7] and increased up to a maximum of 2 shillings (10%) on incomes of over £200. Pitt hoped that the new income tax would raise £10 million, but actual receipts for 1799 totalled just over £6 million.[6]

19th century

Pitt's income tax was levied from 1799 to 1802, when it was abolished by Henry Addington during the Peace of Amiens. Addington had taken over as prime minister in 1801, after Pitt's resignation over Catholic Emancipation. The income tax was reintroduced by Addington in 1803 when hostilities recommenced, but it was again abolished in 1816, one year after the Battle of Waterloo.
.
.
.
Under Peel

The general election of 1841 was won by the Conservatives with Sir Robert Peel as Prime Minister. Although he had opposed the unpopular income tax during the campaign, an empty Exchequer and a growing deficit gave rise to the surprise return of the tax in his 1842 Budget. Peel sought only to tax those with incomes above £150 per annum, and he reduced customs duties on 750 articles out of a total number taxed of 1,200. The less wealthy benefited, and trade revived as a consequence.[9][10] Peel's income tax was 7d in the pound (about 3%). It was imposed for three years, with the possibility of a two-year extension. A funding crisis in the railways and increasing national expenditure ensured that it was maintained.



https://www.parliament.uk/about/living-heritage/transformingsociety/private-lives/taxation/overview/incometaxbolished/

By the early 1840s business opinion had moved considerably towards 'free trade' and the removal of high protective duties on imports and exports. Sir Robert Peel, the Prime Minister, was keen to facilitate this thinking. In 1842, therefore, he re-introduced income tax at 7d in the pound on incomes over £150. This allowed him to remove import and export duties on more than 700 items.

The reimposition of the tax - this time as a peacetime measure - was only meant to be temporary. But the increasing cost of government commitments, pushed up by the Crimean War of 1853-56, made this an increasingly remote prospect. Income tax has remained ever since.

IIRC only around 4 million families were paying income tax pre WW2, pub landlords and the likes. Was broadly considered and is a invasion of privacy.

You are correct in saying that income tax only really started hitting most people after WW2. Pretty much any tax, except possibly VAT ( and similar sales/purchase taxes) if you are paying anonymously in cash, is an invasion of privacy.


https://www.att.org.uk/history-income-tax-and-hmrc

Initially, Income Tax had no interest or relevance to the great majority of the population because there were fewer than half a million taxpayers. Only the richest people paid Income Tax. It was not until the early years of the twentieth century before the number of taxpayers even exceeded a million.

That all changed when it was decided that Second World War expenditure should be financed from taxes. Tax rates were increased and the level at which people started paying tax was lowered, while wages were rising rapidly. This soon brought the number of taxpayers to over 12 million, so that the majority of working people had to pay Income Tax. The only practical method of enforcing tax liabilities was by deductions from wages before they were received, and so in 1944 PAYE (Pay As You Earn) was born. The British scheme had been piloted by Churchill’s Chancellor Sir Kingsley Wood from 1940/41. On the day it was to be announced, Wood collapsed and died. But by the end of January 1944, fifteen million people - anyone earning over £100 a year or more - had received notices telling them their code number.

[TimeBomb]

To address your last question, if paying the fee is indeed considered a disposal, it may be worth exploring whether you can adjust the original "acquisition costs" of your crypto to reflect the fact that you had to pay a fee. This adjustment could potentially impact your overall tax calculations, but it's important to consult a tax professional who specializes in crypto taxes to ensure accuracy.