Britons issued £3,000 tax threshold warning in fresh update

HMRC wrote: “If your crypto profits have taken off, you may need to pay tax. Crypto gains above £3,000 count towards your taxable allowance. Check if you need to pay tax on cryptoasset profits and make sure your tax status isn’t lost in space.”

The £3,000 figure represents the current annual Capital Gains Tax allowance, meaning anyone whose total gains from chargeable assets, including cryptoassets, exceed that threshold during a tax year must declare them and pay any tax due.

Under HMRC rules, a tax liability can arise whenever an individual “disposes” of crypto tokens and makes a profit.

Disposal does not only mean converting cryptocurrency into cash, but also includes exchanging one token for another, using crypto to pay for goods or services, or gifting tokens to another person.

There are limited exceptions to this rule, including transfers between spouses or civil partners and donations to registered charities, which are not treated as chargeable disposals.

Other forms of taxation may also apply depending on how the crypto was acquired, with income tax potentially due on tokens received through employment, mining activities or certain reward schemes.

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Investors are required to calculate the gain made on each disposal by working out the difference between the acquisition cost and the disposal value.

Where transactions take place between connected parties, such as family members, market value must be used instead of the actual sale price to determine the gain.

Taxpayers are permitted to deduct certain allowable costs when calculating their taxable gain, including transaction fees, advertising costs, contract fees, professional valuations and a proportion of pooled costs.

However, expenses associated with mining activities, such as equipment purchases or electricity bills, are not deductible when calculating Capital Gains Tax liabilities.

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The UK operates a pooling system for cryptoassets, under which each type of token is grouped into a single cost pool rather than being treated as separate individual holdings.

Each time tokens are purchased, the acquisition cost is added to the relevant pool. And when tokens are sold, a proportionate share of the pooled cost is deducted to calculate the gain.

Special matching rules also apply where tokens are bought and sold on the same day, or within 30 days of a disposal, mirroring similar rules used for shares.

HMRC requires investors to keep detailed records of every transaction, including the type of tokens held, dates of acquisition and disposal, quantities, sterling values, bank statements and updated pooled costs.

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While many crypto exchanges provide downloadable transaction histories, these reports do not calculate tax liabilities or maintain pooled cost records, meaning investors must ensure their own records are accurate and complete.

Individuals whose gains exceed the £3,000 allowance must report them either through a Self Assessment tax return or by using HMRC’s Capital Gains Tax real-time reporting service.

From the 2024/2025 tax year onwards, Self Assessment forms include a dedicated cryptoasset section, and all figures must be reported in pound sterling.