Cryptocurrency – The Hidden Tax Traps

Gary Hughes

Special Projects Manager

Cryptocurrency is the new “buzz-word” in the financial world. Whilst it has been around for a while, recent peaks and troughs in the currency have brought it to the media’s attention. 

What seems to have gone somewhat under the radar are the tax implications of cryptocurrencies. If you are buying and selling cryptocurrency, it is essential to consider the tax implications, and whether such activity can be deemed a trade.

What is Cryptocurrency?

Cryptocurrency is a digital or virtual currency which, once purchased, is held in a “wallet”, and allows the owner to spend the currency at compatible outlets.Unlike regular money, it has no physical presence.

There are several cryptocurrencies in operation, one of the most well-known is Bitcoin, which was first released in 2009.

Hidden Traps:

With the recent upsurge in cryptocurrency values, individuals could unknowingly be brought into the tax system, as despite not actually receiving physical cash, there can be numerous trades within the digital wallet that will require tax considerations. Therefore, individuals could have an unknowing tax liability despite not having extracted any funds.

What are the Tax Implications of Cryptocurrency?

The position where a company uses cryptocurrency is relatively straightforward. Profits or losses on exchange movements between currencies are taxable, so generally the rules on foreign exchange and loan relationships apply.

The position for individuals however is slightly more complicated. Before we can ascertain which tax applies (income or capital gains tax), we need to ascertain if the individual is trading in cryptocurrency, or is holding the currency as an investment.

If an individual is regularly buying and selling cryptocurrency, then he could be deemed as a cryptocurrency trader, and would pay tax at income tax rates.

On the other hand, if the individual bought and held onto the cryptocurrency for a prolonged period of time, it is likely he would be deemed an investor, so any profits would likely be taxed at capital gains tax rates.

Whether an individual is trading or investing is a complicated area subject to different factors which must be assessed on a case by case basis. Essentially, the activity must be assessed against the “Badges of Trade”.

How Hallidays can help

If you own cryptocurrency you need to consider the potential tax implications of buying and selling. Profits made will be liable to either income or capital gains tax, so early advice is essential to avoid a potentially nasty tax surprise further down the line. For expert advice, please contact our tax team on 0161 476 8276 or


The information contained herein is of a general nature and is not intended to be received as formal professional advice. Whilst we endeavour to provide accurate information, there can be no guarantee that the information is accurate as of the date it is received, or that it will continue to be accurate in the future, due to legislative changes. It is therefore important that before you act upon any information contained herein you seek appropriate professional advice to take account of your exact circumstances.

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