UK Tax Guide for Crypto and Stock Investors

As an investor in the UK, understanding the tax implications of your cryptocurrency and stock investments is crucial to managing your portfolio effectively. Whether you’re trading crypto, investing in stocks, or both, there are specific tax regulations you must comply with. I have done this article with the purpose of breaking down the applicable taxes, allowances, and strategies, including the benefits of using an Individual Savings Account (ISA).

What is Capital Gains Tax?

Firstly, you need to understand what is Capital Gains Tax and here it is an extraction from the UK Government website explaining it.

Capital Gains Tax is a tax on the profit when you sell (or ‘dispose of’) something (an ‘asset’) that’s increased in value. It’s the gain you make that’s taxed, not the amount of money you receive.

I have been asked many times about this so seems like a lot of people is not fully understanding this concept. You may have double your money with the recent bull run in stocks and crypto, however, whichever amount you are positive, you won’t be taxed unless you sell as mentioned above. Lets dive deeper on each case below.

Taxation on Crypto Investments

Cryptocurrency investments in the UK are treated similarly to other capital assets and are subject to Capital Gains Tax (CGT) when you sell, exchange, or gift your crypto holdings. Here are the key points:

When is Crypto Taxable?

You may need to pay CGT in the following scenarios:

• Selling crypto for fiat currency (e.g., GBP).
• Exchanging one cryptocurrency for another.
• Using cryptocurrency to purchase goods or services.
• Gifting cryptocurrency (except to your spouse or civil partner).

Allowances and Rates (2024/25) for Cryptocurrency profits

The annual Capital Gains Tax allowance is £3,000 for the 2024/25 tax year. However, following changes announced in the October UK budget, taxation on capital gains will differ depending on the timing of the gains:

• For gains from 6 April to 29 October 2024:
  • Basic-rate taxpayers: 10%
  • Higher and additional-rate taxpayers: 20%
• For gains from 30 October 2024 onwards:
  • Basic-rate taxpayers: 18%
  • Higher and additional-rate taxpayers: 24%

Example:

• If Alice sells crypto for the same gain on 1 November 2024, the £2,000 taxable gain is taxed at 18%, resulting in a tax bill of £360.
• Alice, a basic-rate taxpayer, sells crypto for a gain of £5,000 on 15 October 2024. She exceeds her CGT allowance of £3,000, so £2,000 is taxable at 10%, resulting in a tax bill of £200.

You must also keep detailed records of your crypto transactions, including purchase prices, sale proceeds, and dates.

Taxation on Stock Investments

Stock investments outside tax-advantaged accounts are also subject to CGT on any gains and Dividend Tax on income from dividends. Here’s what you need to know:

Capital Gains Tax on Stocks

Just like with crypto, the annual CGT allowance applies. Gains above £3,000 are taxed as follows:

• For gains realized from 6 April to 29 October 2024:
  • Basic-rate taxpayers: 10%
  • Higher and additional-rate taxpayers: 20%
• For gains realized from 30 October 2024 onwards:
  • Basic-rate taxpayers: 18%
  • Higher and additional-rate taxpayers: 24%

Example:

• If Bob sells the stocks on 2 November 2024, the taxable gain of £7,000 is taxed at 24%, resulting in a tax bill of £1,680.
• Bob, a higher-rate taxpayer, sells stocks for a gain of £10,000 on 20 October 2024. After the £3,000 allowance, £7,000 is taxable at 20%, resulting in a tax bill of £1,400.

Dividend Tax (2024/25)

Dividend income has its own tax-free allowance, which is £500 for the 2024/25 tax year. Beyond this:

• Basic-rate taxpayers pay 8.75%.
• Higher-rate taxpayers pay 33.75%.
• Additional-rate taxpayers pay 39.35%.

Keeping Records

Accurate record-keeping is essential. This includes records of purchase and sale transactions, as well as any associated fees, which can reduce your taxable gain.

The Role of ISAs

All of the above taxes to be paid for crypto, stocks and shares gains could be reduced by having an Individual Savings Account (ISA).This is a powerful tool for UK investors looking to minimise taxes. Both Stocks and Shares ISAs and Innovative Finance ISAs offer tax-free growth and income.

Why Open an ISA?

ISAs provide several benefits:

• No CGT or Dividend Tax on investments held within the ISA.
• An annual allowance of £20,000 (2024/25 tax year), which can be split across different types of ISAs.

Types of ISAs for Investors

• Stocks and Shares ISA: Ideal for stock investments and managed funds.
• Innovative Finance ISA: Suitable for peer-to-peer lending and crowdfunding.
• Crypto ISAs: While traditional ISAs don’t include cryptocurrencies, some providers offer crypto-like accounts under similar structures.

Imagine that you have invested £15,000 in 15 different companies at £1000 each in a Stocks and Shares ISA. You had the good luck that one of those companies has multiplied by 10 its value so your investment of £1000 has gone to a value of £10,000. If you had this investment in a Stocks and Shares ISA you could sell it, having effectively a £9,000 capital gain, however that won’t be taxed and your capital gains allowance won’t be taken on this transaction because is on a ISA wrapper.

Maxed Out Your ISA Allowance? Here Are Your Options

If you are one of those people that has enough money that you’ve reached the annual ISA limit (£20,000 on the 2024-2025 tax year), you have to consider these strategies to manage your investments effectively:

1. Use Your Spouse’s ISA Allowance

If you’re married or in a civil partnership, your spouse can also contribute up to £20,000 annually into their own ISAs. This, however, will be on your spouse name, so you need to be 100% sure you want to share this.

2. General Investment Accounts (GIAs)

A General Investment Account is a flexible option for investing beyond your ISA limits. While gains are subject to CGT and Dividend Tax, these accounts don’t have contribution limits.

Lets say that you have maxed your annual ISA limit and but you still want to invest more money as you see great opportunities on the market, you could invest in a general investment account any money as already discussed at the start of the article, the gains will not be taxed unless you sell.

Good strategy for this is to plan your financial year at the start. If you now that you will be maxing out your ISA allowance you may want to decide which investments you will do under your ISA account and which on your General Investment Account.

My personal advice, go for high risk / high reward stocks on the ISA account so if there is a massive swing in value you are covered under ISA rules, the stocks that are considered more ‘value stocks’ normally have less movements on its stock prices, so General Investment Account is their best place once you have gone over your ISA Allowance. If you want to hold long term you could always sell before April enough stock to fall within your Capital Gains Allowance (£3,000) so you don’t pay tax and then put that investment back on the next financial year under your renewed ISA allowance.

3. Venture Capital Schemes

Explore tax-efficient options like the Enterprise Investment Scheme (EIS), Seed Enterprise Investment Scheme (SEIS), and Venture Capital Trusts (VCTs). These schemes offer generous tax reliefs, including income tax relief and CGT deferral.

4. Pension Contributions

Investing in a personal or workplace pension offers tax advantages, including tax relief on contributions and tax-free growth within the pension.

Tax Strategies for Normal Investment Accounts

As briefly discussed above, for investments held outside an ISA, consider these tips to reduce your tax liability:

1. Utilize Your Allowances

• Make full use of the £3,000 CGT allowance and £500 Dividend Tax allowance each year.

2. Offset Losses

If you incur losses on investments, these can be offset against gains to reduce your overall taxable amount. Report these losses to HMRC.

3. Time Your Sales

Spread the sale of assets across multiple tax years to take advantage of annual allowances.

4. Gift to Your Spouse

Transfers between spouses are tax-free, allowing you to distribute gains more efficiently.

Reporting and Paying Taxes

How to Report

File a Self Assessment Tax Return if your total gains exceed the annual allowance or if you have gains from crypto investments. Declare:

• Total gains and losses.
• Any reliefs or allowances claimed.

Deadlines

• Paper returns: 31 October following the tax year.
• Online returns: 31 January following the tax year.

Penalties

Late filing or payment incurs penalties, so ensure you meet all deadlines.

Final Thoughts

We have tried to extract the key information for stocks, shares and crypto investors to pull all the information together in a single article, however, you should double-check this information yourself on the UK Government website on their section for Capital Gains Tax and for Dividend Tax. There is also a self-assessment helpline which is also quite helpful to solve your tax queries. For a more personalised advice, consulting a tax professional or financial advisor is your best option to meet your unique situation and ensure full compliance with UK tax laws.

Navigating the UK tax landscape as a crypto or stock investor can be complex, but understanding the rules and leveraging tools like ISAs can help minimise your tax burden. By staying informed, utilising allowances, and adopting strategic planning, you can keep more of your investment returns.

Happy investing!