Cryptoassets are a hot topic but, given the plunging prices of the 2023 crypto winter, what’s the position with Capital Gains Tax if you make a loss?
A personal investment
HMRC usually treats holding cryptoassets as a personal investment, rather than a financial trade. This brings activity within the Capital Gains Tax regime. If you make a loss on your transactions, it will fall to be treated under the usual capital gains tax loss rules. It would be possible to offset the loss against other gains in the same or a future tax year, though not to carry it back against previous years.
Losses are claimed on the tax return, but note, in passing, that the loss crystallises only on disposal. In HMRC’s words: ‘“disposal” is a broad concept’. It includes:
- sale of cryptoassets; using them in payment for goods and services
- exchanging them for a different type of cryptoasset, and
- gifting cryptoassets to someone other than a spouse or civil partner.
In certain circumstances, it may be possible to crystallise losses for tokens that are still owned, if they become worthless during your ownership. This involves what is called a Capital Gains Tax negligible value claim. Having appropriate records is the key to dealing with HMRC in any of these areas. You need to be able to show an audit trail from acquisition to disposal, and we should be pleased to explain exactly what that means in practice.
Capital Gains Tax planning is always complex. When superimposed on the new and evolving field of cryptoassets, it can seem even more so. Please speak to your RfM advisor for guidance. Enquire online or contact one of our offices.
For information of users: This material is published for the information of clients. It provides only an overview of the regulations in force at the date of publication, and no action should be taken without consulting the detailed legislation or seeking professional advice. Therefore no responsibility for loss occasioned by any person acting or refraining from action as a result of the material can be accepted by the authors or the firm.