Capital gains TAX on non cashed out crypto assets.

From what I have read in your documents on the HMRC website, an on-chain crypto currency token, swapped for a different crypto currency token, is classified as disposing of an asset. And therefor, subject to capital gains tax. Does this TAX have to be paid despite not converting the final transaction to legal currency ? As in, just left on-chain. Because it is my understanding that TAX is only due when cashed out to actual real world currency (legal tender). Otherwise, this would be the equivalent of purchasing any kind of asset, only have to pay tax on the increased value of that asset every tax year. Despite never selling it for real money.

I would appreciate an answer to this. Thank You.

Hi,

You can see guidance below that gives a general view on what we would class as a disposal for Capital Gains Tax (CGT) purposes. It lists the exchanging of tokens for a different type of token as a potential disposal for CGT. But also advises that there is no disposal if the individual retains beneficial ownership of the tokens throughout the transaction and provides an example of this.

The charge to CGT will depend on the facts of the transfer.

CRYPTO22100 - Cryptoassets for individuals: Capital Gains Tax: what is a disposal

CRYPTO22110 - Cryptoassets for individuals: Capital Gains: Transferring tokens between distributed ledgers

Thank you.

Hi, I will try to be more specific because I have read the guidance already but want to be sure I understand this correctly. And I am not understanding what the guidance means. Hypothetically, suppose I purchase £1000 worth of BTC on a crypto Exchange. The BTC is then sent to a private wallet. Over a 9 month period, the BTC increases in value to £2000. I make the decision to swap the BTC on a DEX to ETH (still worth £2000) directly, because I might for example, feel there is further upside potential. And at this stage I do not want to cash out to GBP. So instead, I keep the crypto where it is for another 2 years. In the above example, are HMRC asking people to pay TAX on the increased value between the first BTC value (when it was purchased) and ETH value (when BTC was exchanged to ETH) before the start of the following TAX year ? To be absolutely clear, HMRC are expecting people to pay TAX on Crypto assets where no actual real world gain or benefit was realised. Literally never sold, where sold literally means selling for legal tender (GBP) ?

Hi,
Please refer to guidance at:
Check if you need to pay tax when you sell cryptoassets
Thank you

It says:- Exchange your tokens for a different type of cryptoasset Please can you provide details of legislation that says when exchanging crypto currency tokens for a different type of crypt asset constitute a taxable event. Crypto Assets are not currency or legal tender. Only when they are sold for GBP should there be a taxable event. Property, Gold, Stocks, Shares, they are all subject to tax when selling to currency (legal tender). I have not heard of anything were swapping one asset for another constitutes a taxable event. I question the legality of this. I cannot see how it is possible for every single person who uses crypto currency to keep records of every event where one crypto currency swapped for another. It's completely unrealistic and unethical. For example, chlidren who play Blockchain Games will be constantly swapping crypto back and forth as part of that game or ecosystem. It's unrealistic to expect people to declare that, and especially keep records. It's not going to happen. That is just one example. This requirements means that many many people would be bankrupt if they were to go back over years and years of on-chain transactions. The reason for this is that many tokens will have gone to zero without people even knowing. Yet had a taxable event in the past. Probably 99% of individuals have no idea if this tax event. Almost all people assume tax is paid when selling to GBP. I would like to see the legislation on this please.

Hi Barry Winters,
Legislation is at:
Factsheet: cryptoassets - legislation
Thank you. 

As things stand, so far, not only did you NOT answer my questions in the section where I was more specific and gave a hypothetical scenario. But you pointed me to legislations where the context is:- "The Economic Crime and Corporate Transparency Bill (“the Bill”) aims to strengthen the UK’s fight against economic crime. It will also support efforts to tackle terrorist financing." Is things stand, based on our your responses, I am none the wiser and therefor cannot make assumptions about whether or not I should pay TAX. But also don't even see any legal basis for it. I will therefor base my TAX calculations as income tax only. I have no other options or means to do this.

Hi,

This forum is for general advice and guidance only.

Should you require further advice, please contact us directly.

Self Assessment: general enquiries

Thank you.

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Feedback .

Not sure if Barry Winters is getting notifications and still reading this but if he is, he made a few fundamental errors. The main one being that "sold" means for legal tender. Legal tender only has relevance for being sued for non-payment of a debt (in that you can't be sued if you pay into court using legal tender). It has no bearing on ordinary transactions. A contract of sale requires both parties to provide consideration but consideration is merely something of value. It doesn't have to be money (whether an official currency or otherwise), just something of value. So yes, if you swap one crypto for another you have entered into a contract of sale (both of you are providing consideration in the form of crypto) and disposed of an asset for another asset. This means you have a £1k gain and then when it comes to disposing of the ETH your acquisition cost for it is £2k.

Barry, The HMRC cryptoasset manual confirms that a crypto to crypto transaction is a disposal at: https://www.gov.uk/hmrc-internal-manuals/cryptoassets-manual/crypto22100 Crypto tax software can help you keep track of all taxable disposals and importantly acquisitions - as your initial costs are as important in the capital gains tax calculation.

There seems to be a mix up in the feedback How is it logical for one to pay tax with money that one doesn't have? Or pay taxes on a digital asset that has appreciated but has not been cashed out/converted to Fiat currency (legal tender) As far as I know you only pay taxes on income you have received/capitals gains from property/stocks once you've sold/cashed out the asset

There are no HMRC rules on illiquid crypto assets, highly volatile or experimental tokens - which constitutes most of crypto. The legislation is way behind what actually happens in crypto, hence the non answers from the admin. Investing in institutionally backed assets (assets with an ETF) such as BTC or ETH should fall under the legislation, but all other types of crypto could be argued not to, and getting taxed when they are exchanged to fiat seems the logical way to manage these types of assets.

So if I swap £1000 worth of gold to £1000 worth of silver I would have to pay tax on it? If so, what amount as I am transferring the same value? That is the same as, say, transferring £1000 worth of BTC for £1000 worth of ETH, it is exactly the same amount, £1000 worth. So where does a tax come in?

So if I purchase £1K Bitcoin today and convert it to Eth when it worth £1.5K before end of tax year. Pay tax on it, however a need arises and I want to sell it next tax year when my Eth is only £500. Would HMRC refund the tax I paid due to loss when I cached it out?

Hi NikTheGeek,
There are different rules for different types of assets and this has been set in legislation. See: Capital Gains Tax: what you pay it on, rates and allowances
Thank you.

Hi gadikoc,
You will only pay capital gains once you sell an asset and exceed a gain of £3000 for 23/24.
No tax is due on any growth until you sell it.
If you then sell it for less than you paid any loss can then be used against future capital gains.
Thank you.

Hello, I am little bit confused, start invest in Crypto since 2021,on the top of bull run, logic got a lot of loss, next 3 years still invest, portfolio some time it's on profit, some time loses, never fixed, just hold, never report to HMRC (didn't know), now hope in 2025 will get some profit, how will report, when will sell my usdt to gbp? I did some illegally when did not report last 3 years, I just invested, converted from one token to another one, but never get out in GBP(UK blocked all exchanges)

Hi,
You can see guidance here:
CRYPTO20000 - Cryptoassets for individuals
Thank you.