Cryptoassets Are Taxable
In uncertain times people instinctively look for alternative ways to invest and some may choose cryptoassets such as Bitcoin and non-fungible tokens.
If you decide to go digital with your investments, think about how the profit or loss you make on these assets will be taxed. HMRC does not consider cryptoassets such as Bitcoin to be a form of money or currency, so the special tax rules that apply to holding and lending money do not apply to cryptoassets.
Where cryptoassets are lent or 'staked' (lent to a platform which lends on to various borrowers) the return provided to the asset owner is not 'interest' but it is taxable either as sundry income or a capital gain.
HMRC is unlikely to consider transactions in cryptoassets as trading, so by default the transactions are capital and any profits must be taxed as capital gains. This means that for every sale or exchange of cryptoassets a gain or loss must be calculated.
This can create serious practical problems as crypto-transactions are often automated and carried out in vast numbers over short periods. You need to extract the necessary transaction data from the digital exchanges and digital wallets you use so that each transaction can be analysed into a capital gains tax computation. We are not aware of any software that will do this yet so this information gathering can be time consuming and expensive.
Finally, HMRC is aware of cryptoasset transactions as it receives information about customers from digital exchanges.