On the face of it, one may intuitively think that crypto trading should be subject to Income Tax given that the nature of trading is to generate income. HMRC’s guidance, however, makes it clear that for the most part, crypto gains are subject to Capital Gains Tax. This does not include crypto spread-betting which is legal in the UK and classed as gambling, thus not making it taxable.
One common misconception is that Capital Gains Tax should only be paid on gains made once you convert your crypto into a fiat currency (money as we traditionally know it to be, “cash in the bank”). However, HMRC have stipulated that trading one cryptocurrency for another (i.e. Bitcoin for Ethereum) triggers a taxable event. Consequently, crypto traders will often have multiple taxable events in one given year as they move between cryptocurrencies. In any given tax year (6th April to 5th April the following year), individuals should pay Capital Gains Tax on their total net gains taking into account every taxable event that has occurred moving between cryptocurrencies and also converting them into fiat.
An individual can offset their Capital Gains Tax annual allowance (currently £12,300) against their gains before paying the relevant rate of tax (whether that be 10%, 20% or a mixture of both given the individual’s income).
If an individual makes net losses in a tax year, they can carry these forwards or backwards to offset against capital gains made on other assets in other tax years.