10 Ways to Avoid UK Crypto Tax (2023)

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Wondering if you can avoid crypto taxes in the UK?

While trying to hide your cryptocurrency from HMRC is a bad idea, savvy investors use legal tax strategies to save money.

In this guide, break down 10 easy ways to legally lower your cryptocurrency tax bill.

How is cryptocurrency taxed?

In the UK, cryptocurrency is subject to capital gains and ordinary income tax.

For more information see our comprehensive guide to how cryptocurrency is taxed in the UK.

Can I hide my cryptocurrency from HMRC?

Since cryptocurrency transactions are pseudo-anonymous, many investors assume it is easy to hide their crypto income from HMRC.

It’s wrong.

The HRMC regularly uses its statutory powers to collect customer information from major stock exchanges operating in the UK. This information includes names, addresses, transaction frequency, and the total value of customers’ crypto holdings.

10 Ways to Avoid UK Crypto Taxes

While there’s no way to legally evade taxes, here are some strategies that can help you legally lower your tax bill.

Keep your cryptocurrency

The easiest way to avoid crypto taxes is to simply hold onto your cryptocurrency for the long term.

Remember that there is no taxable event for holding your cryptocurrency or transferring it between different wallets you own.

Take advantage of the tax exemption thresholds

For most UK taxpayers, the first 12,300 capital gains income you earn is completely tax exempt.

Remember that your tax exemption threshold decreases if your total income exceeds 100,000. If your income exceeds 125,140, ​​you will not benefit from any tax relief.

Take profits in a low income year

The UK has a progressive tax system. Generally, the higher your income, the more taxes you will pay.

As a result, many investors choose to dump their cryptoassets in years when their income is low. For example, you can potentially reduce your tax liability if you sell your crypto in a year when you are studying at university full time.

Harvest Crypto Losses

While losing money is never the goal, selling your cryptocurrency at a loss comes with some serious tax benefits.

Cryptocurrency losses can be used to offset gains in cryptocurrency, stocks, and other assets, a tactic known as tax loss harvesting.

It is important to remember that you must realize your loss to claim it when you return. Examples of realizing your loss include selling your crypto, exchanging it for another cryptocurrency, or using it to make a purchase.

Make a crypto donation

Donating cryptocurrency to a registered charity without receiving anything in return is considered tax deductible. You can deduct the fair market value of your crypto at the time of donation.

However, your donation will be subject to capital gains tax if the value of your crypto has increased since you originally received it.

Crypto gift to a significant other

In the UK, gifting crypto to your spouse or civil partner is considered completely tax-free.

If your partner hasn’t taken full advantage of their tax break for the year, you can gift them your crypto to minimize the tax liability of an assignment.

Hire a tax expert

If you are a frequent cryptocurrency trader, you may want to consider hiring a tax professional. Although hiring an accountant can be expensive, investors often find that the tax savings are well worth the cost.

Invest in an SIPP

Self-Invested Personal Pensions (RSPPs) are designed to help you build wealth while minimizing your tax burden. For all the contributions you make to your SIPP, the HRMC supplements an additional 20%. After age 55, you can withdraw a lump sum of 25% of your SIPP assets tax-free.

Currently, you cannot hold Bitcoin and other cryptocurrencies in a SIPP. However, you can invest in the VanEck Vectors Digital Assets Equity UCITS ETF, which is designed to track the price of companies with heavy exposure to crypto and blockchain.

Moving to a low-tax country

Although it may seem like an extreme measure to take, some crypto investors choose to move to a country with more favorable tax rates to save money.

In Germany, gains on cryptocurrency eliminated after a year or more are considered completely tax-free. Other popular crypto tax havens include Singapore and the United Arab Emirates.

Use crypto tax software

Filing your taxes incorrectly can be costly. In cases where misstatements have occurred due to the taxpayer’s negligence, the HRMC may impose a penalty of between 0 and 30% of the tax payable.

This means that it is important to track your transactions across all your wallets and exchanges.

If you are looking for an easy way to generate a crypto tax report and identify your tax loss harvesting opportunities, crypto tax software can help. Simply plug in your wallets and exchanges, import your trades and let the platform do the work for you!

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