Slash your UK crypto tax bills with these two strategies

UK crypto tax bills can be expensive, especially if you’ve had several transactions and profits from your cryptocurrencies. But there are some ways to help you lower the taxes you owe to the HMRC. Optimise your tax position now with these two strategies, and say hello to a lighter-on-the-pocket crypto tax bill.

Tax loss harvesting

Tax-loss harvesting is a strategy that lets you sell your assets at a loss before the calendar year ends. It’s like “harvesting” your losses to offset your tax expenses. This is an excellent way to save on your crypto tax bill while keeping your existing portfolio intact.

Sell the cryptoassets that have declined in value below their purchase price. You can then repurchase your sold assets in the next tax year to keep your portfolio unchanged. However, note that the HMRC has a 30-day rule on reacquiring these assets. Per this rule, you cannot sell assets and repurchase them in a short period (within 30 days). This prevents individuals from using their annual exemption allowance to reset their cryptos’ base cost at a higher value. Any future gains on the crypto shall be based on the new purchase price.

The HMRC’s 30-day rule applies to cryptos of the same class. If you don’t want to wait 30 days to reacquire your assets, you may purchase alternative cryptos instead. Select a cryptocurrency with a value highly correlated to that of your original cryptos.

Let’s have an example:

You bought 1 BTC for £14,000 in November 2020. Come March 2021, the BTC value has declined to £7,000. You sell it for £7,000 before 5 April, realizing a £7,000 loss for your tax return.

Now, your three options for reacquiring your cryptoassets after tax-loss harvesting are:

  • Repurchasing 1 BTC 30 days or more after selling it in April 2021. Buy 1 BTC if its price is below £14,000 at that time.
  • Purchasing an amount of ETH equivalent to the value of BTC you sold. Do this immediately after selling your 1 BTC. You then maintain your crypto position in your portfolio without having to wait for more than 30 days just to reacquire your assets.
  • Directly swapping your 1 BTC for ETH at £7,000 value, instead of selling the BTC and purchasing the ETH in separate transactions. Through this, you’ll have realized your losses and balanced your portfolio all in one transaction.

Use cryptocurrency management and tax tool like ACCOINTING to get a better grasp of your opportunities for tax-loss harvesting. ACCOINTING has a Holding Period Dashboard that shows you your short and long-term capital gains/losses segregated by wallet or exchange. Just check the dashboard and sell the number of units reflected on it.

Transferring your cryptoassets to your civil partner or spouse

You can transfer some of your cryptocurrencies to your legal spouse or civil partner to lower your crypto tax bills. This works only when you’ve used up your annual exemption allowance. In this case, your legal spouse or civil partner’s annual exemption allowance will be used after you’ve gifted the cryptoassets to him/her.

Here’s a quick example of how partner-to-partner crypto transfer works:

Wife sends 1 BTC to her husband. She acquired it in July 2017 for £2,000 – becoming the cost basis of this 1 BTC. The cost basis shall move from the wife to the husband at the time of gifting. If the husband sells this crypto at £6,000, he’ll use the £2,000 as the cost basis for determining his profits.

Keep tabs on your transfer records (separate records for both you and your partner) for auditing purposes. You can easily do so by using a crypto portfolio and tax management tool like ACCOINTING. Remember that the cost basis shall move from one partner to another and be used for profits calculations should they dispose of the gifted cryptocurrency.

In a nutshell

Tax-loss harvesting and gifting your cryptos to your legal partner/spouse are just two ways to lower your UK crypto tax bills. Talk to your accountant or legal crypto tax expert to see if these strategies would work out well for you. Take action to lessen your tax burdens by actively keeping tabs on your portfolio through ACCOINTING.COM.

About Author

Collin is a Bitcoin investor of the early hour and a long-time trader in the crypto and forex market. He's fascinated by the complex possibilities of blockchain technology and tries to make matter accessible to everyone. His reports focus on developments about the technology for different cryptocurrencies.

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