Cryptocurrency owners in the United Kingdom predominantly hold Bitcoin, Ethereum, and Dogecoin, so it doesn’t come as a surprise to see them hit the news time and again. Brits tend to have a soft spot for digital assets closely related to Ethereum, namely Ripple, Polkadot, and Cardano. Buying Ethereum in the United Kingdom is safe, but use a cryptocurrency exchange trusted by the industry. Since there’s no consumer protection, you don’t benefit from the same rights and protections in regulated financial services.
Once you’ve made up your mind about what exchange to use, sign up, deposit your money, and buy cryptocurrency. A cryptocurrency exchange is the go-to place for anyone buying Ethereum and cryptocurrency in general. In case you didn’t already know, you must pay taxes on your holdings. If you purchase digital assets and make a profit, you’re liable for capital gains tax, calculated based on the difference between the price you sold them for minus the price you paid. How much you pay in taxes depends on whether you’ve made a short-term or long-term gain on your investment.
Yes – Cryptocurrency Is Taxable in the UK
From a tax standpoint, cryptocurrency is treated like shares and will be taxed in consequence. When you acquire Ethereum, you’re not getting an asset that behaves like money, so you must account for every transaction and realise gain from the use of the cryptocurrency is subject to tax. According to HM Revenue & Customs, you may be liable to pay both capital gains tax and income tax, but it all depends on the specific transaction. For example, if you earn tokens via staking or as payment for a service, the cryptocurrency may be subject to income tax.
Everyone in the United Kingdom has an annual Capital Gains Tax allowance. According to GOV.UK it was £12,300 until April 2023, £6,000 for 2023/24, and has been £3,000 since April 2024. If your total gains are below it there is no Capital Gains Tax to pay, although you may still need to report your disposals to HMRC. Gains above the allowance were taxed at 10% or 20% when this article was written; for disposals from 30 October 2024 the rates are 18% for basic-rate taxpayers and 24% for higher-rate taxpayers. For additional income from cryptocurrency that exceeds both the basic rate limit and the personal allowance, you must pay income tax between 20% and 45% in tax. The exact amount you pay depends on the transaction you’ve made and the tax that applies, not to mention the income tax band you fall into.
Buying Cryptocurrency on Its Own Isn’t a Taxable Event
People falsely assume that if cryptocurrency is anonymous, evading taxes is fairly simple. Nothing could be farther from the truth. When you dispose of digital assets, you must pay capital gains tax. Purchasing cryptocurrency like Ethereum isn’t a taxable event in itself. It becomes taxable only when you sell it, trade it, or use it to buy products and services. Equally, gifting cryptocurrency is a taxable event unless it’s to your spouse or civil partner. Transferring the tokens through an exchange is the most straightforward way, so ask the recipient to give you their wallet address (it can be a QR code or a long string of numbers).
You’re required to pay taxes on your holdings when you:
- Sell cryptocurrency.
- Trade between two cryptocurrencies.
- Use cryptocurrency as payment.
- Donate cryptocurrency to charity.
Working out how much you need to pay can be challenging as it depends on your unique circumstances, so use a crypto tax calculator. The most important factors to take into account are the holding period and the realised gains or losses. It’s a good idea to make all of your payments electronically because it’s safer, gives you better control over your money, and helps avoid penalties or interest charges. The entire amount must be paid at once from the same card; otherwise, it won’t be processed.
If You’re Holding, You Don’t Need to Worry About Too Much Tax
You can buy and hold cryptocurrency without any taxes despite the fact its value increases. There’s no immediate gain or loss. Hold on to your investment for at least a year before selling; you can make occasional trades, but it’s not necessary to manage your portfolio on a daily basis. This allows you to be taxed at a lower rate or to be offset by capital losses in the future. It’s recommended to sell if the cryptocurrency has decreased in value to realise a capital loss, as it can be used to reduce tax liability.
Holding isn’t necessarily easy, but it’s more accessible compared to trading, as anyone can buy and hold cryptocurrency. Contrary to popular opinion, HODL doesn’t stand for hold on for dear life. It’s actually a misspelling of the word “hold”, a buy-and-hold strategy used in the context of cryptocurrency. Digital assets like Bitcoin, Ethereum, or Dogecoin are extremely volatile, so it’s necessary to mentally prepare for sharp shifts in price as the market swings. A hardware wallet is the safest way to store your coins, so only keep what you plan to use in a software wallet.
To HODL, you must master long-term thinking. Rather than anticipating a peak or a dip in price, you look at long-term growth opportunities. You can make a lot of money from a relatively small investment, and it’s not necessary to watch the cryptocurrency market like a hawk every single day. By approaching cryptocurrency investing with a strong strategy, you can work harder towards your goals. Strategic thinking is important, but in practice, carving out time for long-term thinking is very difficult.
Concluding Thoughts
Any profits made from cryptocurrency are subject to tax – anytime you sell or exchange digital assets, it’s a taxable event. If you sell and rebuy tokens within 30 days, things get even more complicated. The rules are meant to prevent investors from manipulating gains by creating artificial losses. If you want to pay less on cryptocurrency, leverage the tax allowance that’s available to any resident of the United Kingdom. For 2023/24 the Capital Gains Tax allowance was £6,000, and it has been £3,000 since April 2024 (the separate Income Tax personal allowance is £12,570). Another thing you can do is invest cryptocurrency in a pension fund to build financial security. It’s a possibility, but keep in mind that the process isn’t clear-cut, so discuss it with a financial advisor.
