Lack of awareness of CGT liability among crypto investors
More than half of investors in cryptocurrency have limited or no understanding of capital gains tax and associated tax liability on crypto transactions
Understanding of capital gains tax (CGT) was mixed with 34% of owners stating they had a good understanding, but 37% knew little or nothing and 22% were not familiar with it at all, according to research commissioned by HMRC.
Over two fifths (42%) of owners of cryptocurrency were aware that they might be liable to pay tax when they bought goods and services using crypto, but only 45% thought capital gains tax might be liable and 40% said VAT.
The research found that 10% of the population had invested in crypto, up from the 5.7% figure released by the Financial Conduct Authority last year. Over half said they invested in crypto as they saw it as a ‘fun investment’.
Profits and losses varied depending on the level of investment and trading activity. Some 24% of owners that had disposed of cryptoassets made a profit of less than £500, while 7% made a loss of less than £500. Only 13% reported a profit of at least £5,000, while 8% said they made a profit of at least £12,500, which is above the tax-free allowance – annual exempt amount – for CGT. Three percent said they made a loss in excess of £5,000.
The main use of cryptoassets is for investment purposes, so they are generally within scope of CGT.
There was limited awareness of HMRC guidance on tax liability for crypto with 72% stating that they had not seen the information. Of the 28% who had seen the guidance the majority agreed it was clear (87%) and that it had helped them to understand their responsibilities (81%). These people were active investors and were more likely to use advisers and accountants to help them with their tax affairs.
However, only 16% of owners had sought tax advice about their cryptoassets. The most common reasons for seeking tax advice was while holding the cryptoasset (39%) and on acquisition (37%).
Surprisingly respondents noted high levels of contact with HMRC, with 53% of owners saying they had contacted HMRC at least once in the last year, though the reason was not necessarily about cryptoassets.
The research was conducted by Kantar and consisted of a survey with a representative sample of 5,916 UK adults, including 713 cryptoasset owners.
Story by Sara White.