Last updated on:
March 17, 2024

Bitcoin, the pioneering Cryptocurrency, revolutionised the way we perceive and use money by facilitating online transactions without the need for traditional financial intermediaries. Despite its initial anonymity, Bitcoin transactions have become more transparent over time.

How Bitcoin Works

Bitcoin is generated through a process known as "mining," which requires solving complex algorithms, a task that can be undertaken using either personal or high-powered computers. Alternatively, Bitcoin can be acquired through trading platforms such as Coinbase.

Taxation of Bitcoin in the UK

In the UK, Bitcoin is recognized as a taxable asset, implicating holders in two primary tax domains: Income Tax and Capital Gains Tax (CGT).

Tax Obligations for Bitcoin Earnings

  • Mining Income: Earnings obtained from Bitcoin mining are subject to Income Tax and potentially National Insurance contributions, calculated based on their GBP value at the time of acquisition. Expenses related to mining (like equipment and electricity) are deductible.
  • Capital Gains: Profits realized from selling Bitcoin at a higher price than the purchase cost are liable for CGT.

Handling Losses

Losses incurred from Bitcoin activities can be offset against other types of income (for mined Bitcoin) or capital gains (for sold Bitcoin) within the same or following tax year. This process is known as offsetting or carrying a loss forward.

Reporting Requirements

To report gains or losses from Bitcoin, and to settle any due Income Tax or CGT, individuals must complete a Self Assessment tax return. This ensures compliance with UK tax laws and enables taxpayers to account for any deductible expenses or losses carried forward.

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