This one I can’t answer for you, I’m not regulated or insured for investment advice and it’s not my place to advise you on whether to invest in something. There is a lot of advice on the internet, however like anything you read on the internet you should always fact check it before relying on it. Are you reading from a reputable source or just from someone who wants to make money from you – people who are trying to sell you something are (generally) not giving you unbiased advice.
Yes, people are making money from investing in Crypto, but people are also losing money. Investing in Crypto is no different to investing in stocks and shares and as the well known disclaimer goes ‘the value of your investment may go down as well as up and you may not get back the money you invested’. I’m hearing about people investing their tax savings to try and double it before their tax bill is due…and then losing the lot. Please do not do this. If you want to invest money into anything, whether it’s shares in a well known plc or the blackjack table at a local casino, you should only ever invest money that you can afford to lose.
If you decide to invest, pick your investment portal/exchange carefully. Do your research. So many of them are scams. It may look completely real, they may even (very likely if it is a scam) call you to help relieve you of your hard earned cash. Places like Trustpilot can be very useful to read other peoples reviews and experiences before making a decision. However, even there exercise caution, because dodgy companies will flood their own pages with positive reviews, however they are usually pretty easy to spot if you stop and think about them. If it seems too good to be true, it is.
There is also a scam at the moment where the company you have been trading with says you can’t withdraw your funds until you pay them the expected tax on the profit. This is absolute nonsense, no-one is responsible for collecting taxes apart from HMRC, and the tax is never due at the point of the transaction. If the company you are using is telling you this then I’m afraid to say you have already been conned and will never see the money you have invested again.
I would never recommend dealing with a company that randomly called you, text you, emailed you, popped up on your facebook feed or just because ‘your mate in the pub’ (who, by the way, should also not be relied upon for tax advice) said they were good.
What happens to the profit? It’s an unregulated market so it must be tax free?
Nope. No such thing as a free lunch my friend. Profits on Crypto are taxable in exactly the same way that profits on shares are. The tax is due at the point where the profit is crystallised, so that means when you sell all or part of your investment. However it’s important to understand that ‘selling’ doesn’t just mean exchanging it for GBP, it also means moving it from one crypto to another, to fiat, or giving it to another person.
Generally speaking crypto gains will be taxed under Capital Gains Tax (CGT), so the good news is that each individual has a tax free allowance specifically for CGT of £12,300 (2021/22). This means that say you invested £10k into crypto, and six months later sold your tokens for £25k, the tax calculation would look like this;
| Gain | £25,000 |
| Allowable expense (cost of buying tokens) | £10,000 |
| Profit | £15,000 |
| CGT allowance | £12,300 |
| Taxable profit | £ 2,700 |
| Tax due (10% or 20%) depending on your tax bracket | £270 or £540 |
Obviously this assumes that you don’t already have something to use up your CGT allowance such as the sale of a rental property in the same tax year.
Sometimes normal income tax is payable on Crypto instead of CGT, in the same way that you would be taxed on a self employment. This depends on your activity levels in the markets. If you are actively trading; buying, selling, exchanging currencies very regularly you may be seen as a trader in which case income tax would be payable.
There is a lot more to the taxation side of this, too much for a blog post, but please get in touch for advice if you have Crypto assets.
HMRCs thoughts on Crypto are to a large extent still evolving as they were a little late to the party (they only published their internal manual on it on 30 March 21!), but they definitely view non-disclosure of profits to be just as much tax evasion as any other type of non-disclosure. And yes, they do know; Crypto wallets may be anonymous, but the transfers of money to and from the wallet are not. There is always a paper trail.
I have my own Ltd company, can I use the money from that to invest?
Yes, but with some provisos.
Companies can invest in their own right, so your company could invest in and hold Crypto. However, to do this you need a corporate exchange account in the name of the company, not a personal one.
If you put money from your company bank account into an exchange/wallet in your own name, then this money will be seen as a personal investment, and the money you used from the company will form part of your drawings and be taxed as a dividend, or worst case, will be a directors loan, on which your company can end up paying tax at 32.5%, and that can be a really unpleasant surprise.
Companies don’t have a CGT allowance, so they will just pay normal Corporation Tax on any profits, currently 19% (2021/22), so tax wise this could be much more expensive than holding the asset personally.
| Gain | £25,000 |
| Allowable expense (cost of buying tokens) | £10,000 |
| Taxable profit | £15,000 |
| Tax due @ 19% | £2,850 |
In summary
By all means give it a go, be careful, do your research, keep your accountant informed, be prepared to provide full reports of transactions in order to complete your tax return.
As with any potentially taxable transaction, please ask for advice before you do it, we can’t change the outcome of something to suit what you had intended it to look like
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