Crypto winners cannot avoid the tax authorities

If someone tells you that Krypto does not matter for the average investor, think about it again. Every third of my customers already has crypto-assets like Bitcoin. And the Financial Conduct Authority has estimated the total number of crypto owners in Great Britain.

Most of my customers have a share of just a few hundred pounds. But I have at least one crypto millionaire-or at least he was a few weeks ago. These so -called currencies are so volatile that the value of its stocks may have halved since our last conversation. Bitcoin fell by 50 percent between mid -April and mid -July before it doubled in the following three months.

In the past, I asked customers in our first conversation what savings and investment options they have. I now have to ask for cryptocurrencies. This is because most people do not consider them investments. So what are you?

This question is important not least because it regulates its tax treatment. There is a general view that the profits from the dipping of crypto-assets are not taxable. That is not the case. HM Revenue & Customs has an entire manual on this topic.

Some people try to argue that when buying crypto-assets in the hope that they will appreciate it, gambling and that gambling gains are tax-free. I would not deny that investing in cryptocurrencies is a gambling and you risk losing everything, but HMRC raises special levies from the gambling industry that cannot be applied to these assets.

That means that HMRC wants its share in the proceeds - in one way or another. If you work and pay in cryptocurrency, this will be taxed as income. If you sell, swap or spend crypto assets, all profits will be taxed as a capital profit.

Last year, the car manufacturer Tesla announced plans that should enable buyers to pay with Bitcoin - shortly before they were reversed. I met a man who suggested that if he bought a Tesla with his crypto win, his money would not be converted into pound sterling, would not trigger a taxable event and would not be of interest to HMRC. I said, "But it is converted into a Tesla, and the will are interested."

Even if you exchange your tokens for another type of crypto-asset, you are still taxable for all profits.

Others recognize the tax effects of redeeming their crypto assets, but assume that the HMRC knows nothing of them and therefore believe that they are not caught if they do not declare their profits. This is not true either.

HMRC works with large crypto exchanges and demands that you share customer information. It now uses this data to send "nudge" letters that remind investors of their responsibilities and liabilities.

There are ways to mitigate the effects of a successful investment in crypto-assets.

Each of us has a tax -free allowance of £ 12,300. If you deposit profits below this limit- and remember to take into account realized profits from other assets that are kept outside of a pension or ISA wrapper- you are not subject to capital gains tax (CGT). If you cross this limit, you have to pay.

You can give your spouse or partner for assets without triggering a CGT event. This can be a good way to effectively double your pocket money. If you are a taxpayer with a higher tax rate and your partner a taxpayer with a basic tax rate, the distribution of the assets is particularly useful if a CGT calculation is expected to be created at the disposal.

You would pay 20 percent for all profits above the exemption limit. If your partner's taxable profits, which are added to the taxable income of the year, do not go beyond the base set of 50,270 GBP, you only pay 10 percent.

We approach the end of the tax year. You could liquidate the assets on both sides of April 6th to receive a grant for two years in a short time.

The loss of your private key and the inability to restore your crypto assets is not considered a loss in the eyes of the HMRC

If you feel generous, you can also donate a crypto asset for charitable purposes. You don't have to redeem it first. You have to transfer ownership to the charity, which is easier said than done.

It is still worth knowing that you can offset realized losses with your profits. It is important to write down this during the year, especially if you act regularly. The amount or the number of losses you can compensate for is not limited. You can even present unused capital losses in the following three years if you go beyond your profit.

The loss of your private key and the inability to restore your crypto assets is not considered a loss in the eyes of the HMRC, although I appreciate it that it has to feel like someone who is unlucky in this position.

Finally, it should be remembered that crypto-assets will be owned by inheritance tax (IHT) and this must be taken into account with every IHT planning.

It is difficult to understand crypto-assets. It is also quite difficult to understand the British tax system. But if you want to invest in the first, you have to deal with the second. Otherwise you could get a very painful calculation from HMRC - maybe if you have already issued your profits.

Rebecca Aldridge is a certified financial planner and founder of Balance Wealth Planning