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Do you pay tax on all crypto gains?
Actually, no. HMRC are pretty generous when it comes to capital gains and give every UK taxpayer a Capital Gains Tax Allowance of £12,300 in the 2020-21 tax year. We'll explain this in more depth later, but this means you'll only pay Capital Gains Tax on any capital gains over your £12,300 allowance.
Let's look at how much Capital Gains Tax you'll pay on your crypto.
Crypto Capital Gains Tax rates UK
Unlike many other countries, the UK doesn't have a short-term and long-term Capital Gains Tax rate. All capital gains are taxed under the same rates. The amount of Capital Gains Tax you'll pay depends on how much you earn.
Here are the 2020-21 rates
10% Basic Rate Income Band (up to £50,270)
20% Higher Rate Income Band (up to £150,000)
20% Additional Rate Income Band (more than £150,000)
So as you can see, you'll pay either 10% or 20% tax on any crypto gains, depending on what band you fall under.
If you earned less than £50,270 in 2021 - you'll pay 10% on crypto gains.
If you earned more than £50,279 in 2021 - you'll pay 20% on crypto gains.
How to calculate CGT on cryptocurrency UK
To calculate tax on crypto gains, you need to start by figuring out your cost basis.
Your cost basis is how much it cost you to buy your crypto, plus any transaction fees. If you acquired your crypto by other means - like an airdrop or fork - you'll take the fair market value of the crypto on the day you received in GBP it as your cost basis instead.
Once you know your cost basis, it's easy to figure out your capital gain or loss. A capital gain or loss is the difference in value from when you acquired the asset to when you disposed of it by selling it, swapping it, spending it or gifting it. So subtract your cost basis from the price you sold the asset for. If you spent, swapped or gifted your asset, subtract your cost basis from the fair market value of the asset on the day you disposed of it.
If you have a profit then you have a capital gain and you'll pay Capital Gains Tax on that gain. If you have a loss, you have a capital loss and you won't pay Capital Gains Tax on your loss - but you do want to keep track of these as they can reduce your tax bill. We'll explain this in a minute - but first let's look at an example of calculating tax on a crypto capital gain.