“Keeping up”… with Crypto

With an increasing number of younger people trying their hand at crypto investments, the recent US Securities and Exchange Commission (SEC) fine, suffered by social media influencer, Kim Kardashian, should probably come as a warning to everyone. Kim was ordered…

Blog7th Nov 2022

By Lynn Gracie

With an increasing number of younger people trying their hand at crypto investments, the recent US Securities and Exchange Commission (SEC) fine, suffered by social media influencer, Kim Kardashian, should probably come as a warning to everyone.

Kim was ordered by the SEC to pay a $1.26 million fine for failing to disclose that she had been paid to promote the crypto currency EthereumMax, via her social media account. Whilst it’s fair to say that most of us don’t need to worry about such a scenario, the case does highlight the existence of tax legislation surrounding crypto assets, legislation which many investors are unaware of.

Statistics show that younger investors are more likely to opt for riskier crypto assets, the result of which (when successful) means larger gains are incurred. The Times has reported that in the past year, Capital Gains Tax bills for the under-35s have more than doubled to a staggering £421m, apparently mainly due to an increase in Crypto transactions. Unsurprisingly, these large, and often unexpected, tax bills can somewhat take the shine off their newfound success. The main concern in terms of reporting is that many of those with crypto gains are not already completing Tax Returns, leaving them somewhat blissfully unaware of the requirement to report these gains to HMRC.

Another aspect of crypto investing that can often catches people out, is not knowing what transactions are deemed as chargeable. It’s not only the cashing out of crypto investments that creates a gain, simply swapping crypto for crypto is also subject to Capital Gains Tax, as is using crypto to pay for goods.

Other examples of crypto activity could include Airdrops, (predominantly used by start-ups as a marketing method) which can be taxed as income. Crypto tokens can be delivered (airdropped) into the wallet of traders, either for free or in exchange for a promotional service, and there could be income and/or capital gains tax implications associated with these.

HMRC have already successfully obtained details of investors’ transactions from Coinbase and it is likely many other platforms will be forced to do the same. Volunteering to disclose unreported gains will always allow for reduced tax geared penalties, compared to HMRC prompting individuals in the first instance.

AAB are perfectly placed to carry out historic Crypto tax reviews and provide appropriate, realistic tax advice to ensure the most tax efficient conclusion. If you require any help connected to crypto transactions, please get in touch with Lynn Gracie, Katie Coleby, or your usual AAB contact.

By Lynn Gracie

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