With the uncertainty of the past few years, more people than ever have instinctively looked for new, alternative ways to invest. For many, cryptoassets, including Bitcoin and non-fungible tokens, have been the chosen method.

When deciding to go digital with your investments, it is important to consider how you will tax the profit or loss you make on these assets. As HMRC does not consider cryptoassets a form of money or currency, the special tax rules that would typically apply to holding and lending money will not apply to cryptoassets.

How Are Cryptoassets Taxed?

In the instance whereby cryptoassets have been lent or ‘staked’ (lent to a platform that then lends to various borrowers), the return provided to the asset owner is not classed as ‘interest’. It is instead taxable either as sundry income or a capital gain.

HMRC is unlikely to consider cryptoassets transactions as trading, which means that, by default, the transactions are capital, and any profits must be taxed at capital gains. As a result, for every sale or exchange of cryptoassets, a gain or loss must be calculated.

As crypto transactions are often automated and carried out in vast numbers over short periods, this can create serious practical problems. You will need to extract any necessary transaction data from your digital exchanges and digital wallets to allow each transaction to be analysed into a capital gains tax computation. Currently, there is no software that can do this, making gathering this information a very time-consuming, expensive process.

Finally, HMRC is aware of cryptoasset transactions as it receives information about customers from digital exchanges.