I read this today on Glen Goodman’s website promoting his book “The Crypto Trader” which is a good read:
Bad news I’m afraid - at the start of 2021, the Financial Conduct Authority banned the trading of ‘cryptocurrency derivatives’ by retail traders in the UK. Spreadbetting comes under this heading, so ordinary traders are no longer allowed to trade crypto assets tax-free.
I have not checked but there are two sides to everything. Whereas profits from leveraged trading were previously not taxable in the UK, you could not offset your losses against other taxable business either. Given that most people trading on leveraged accounts lost money, and may continue to lose money, this change in taxable status of leveraged accounts may turn out to be beneficial to the majority of traders.
Its hard to believe that the HMRC found they were losing vast amounts of CGT on profitable crypto spreadbetting by British traders.
Therefore why impose this restriction? I can only suppose the FCA are trying to avert any massive inflow of foreign speculative capital into London as a result of crypto bans and restrictions around the world. Not even sure why they would want to do that but the FCA’s main objective is to ensure the stability of the industry, not the profitability of the current industry constituents. Perhaps some deep political problems were seen as long-term issues…
I think there are other big tax dodging companies out there. Feels a shame to target those trading Crypto. I think they should allow an amount that can be made before tax would be due.
I have read a bit more deeply. The first thing to establish is whether it is a trade subject to income tax (or business tax if it is deemed to be a business) or a capital gain in case of a personal investment. Here is a link to a tax post, with some interesting aspects I suspected would apply.
Make use of your annual capital gains tax allowance
Don’t forget about your allowance. Capital gains tax only has to be paid if you made over £12,000 (increased to £12,300 for tax year 2020-2021) in profits. That means you calculate your capital gains, and if the result is below the limit, you don’t need to pay any capital gains tax.
Offset your crypto losses
If an individual sells cryptocurrency for less than the cost basis, they’ll create a capital loss. That loss can be offset against any overall gains, but you’ll need to report it to HMRC first. Losses can be notified by letter or on your tax return. Capital losses can be claimed any time within four years, starting from the end of the tax year in which they occurred.
Remember, if the disposal of the crypto is to a connected person, the actual sales price is not considered the same as the sales proceeds, and the market value of the crypto on the date of the transaction gets used instead.
Claiming losses for defunct coins or crapcoins
When crypto-assets are subject to wild fluctuation, it’s not unusual for someone to own currency that’s become worthless or of ‘negligible value.’ In such a case, the owner of the asset can file a negligible value claim. In filing that claim, the crypto assets get treated the same way as when they’ve been disposed of, then re-acquired for the amount stated in the claim. That allows you to write off a major loss for an asset that is now illiquid.
Don’t forget that a negligible value claim only needs to contain the name of the asset that’s now worthless, the amount at which the asset should be treated as disposed of (usually £0), as well as the date of the deemed disposal. Filing such a claim results in a loss you can offset against gains once it’s been reported to HMRC. You can make both the loss and negligible value claim to HMRC at the same time.