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TonyTax
TonyTax, Tax Consultant
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Scenario: 1) I bought some bitcoins 3 years ago for £1000,

Resolved Question:

Scenario:
1) I bought some bitcoins 3 years ago for £1000, this equated to say $2000 at the time
2) I sell some bitcoins an exchange on the internet based in Japan for $100,000, this remains on my exchange account for two months
3) I withdraw the $100,000 into my UK account and that ends up in my UK bank account as £60,000

Do I simply owe CGT on £59000 (- the £10900 alllowance)

Is the taxable event the date at sale for dollars, or at the movement to GBP, or both?

How should that be calculated?
Submitted: 3 years ago.
Category: Tax
Expert:  TonyTax replied 3 years ago.

Hi.

Tax jurisdictions have still to catch up with bitcoins so the tax treatment may not yet be set in stone. Having said that, if you buy foreign currency and hold onto it for a period of time and it is not purely for domestic use such as holiday spending or international business travel expenditure for example and you make a gain when you sell it, that gain will be taxable assuming you are UK resident and UK domiciled.

If your original investment was £1,000, you would need to convert the disposal proceeds into Sterling at the rate prevailing at the date of sale to be able to calculate the gain. If the proceeds were £60,000, then your gain is £59,000 and you can deduct the £10,900 annual CGT exemption from that to arrive at the net taxable gain.

There are two rates of CGT, 18% and 28%. The rate or combination of rates that you pay will be dependent on the level of your income in the tax year that you dispose of the gains. If the gain arises in the current tax year, one of the following scenarios will apply:

1 If your income in 2013/14 including the taxable gain is £41,450 or less then all the taxable gain will be taxed at 18%.

2 If your income in 2013/14 excluding the taxable gain is more than £41,450 then all the taxable gain will be taxed at 28%.

3 If your income excluding the taxable gain is less than £41,450 but more than £41,450 when you include the taxable gain then part of it will be taxed at 18% and part at 28%.

The date of sale or the date of a contract to sell is the tax point for UK tax purposes. The fact that the money wasn't repatriated for two months is not relevant.

 

Click on the link headed "Bit of a dilemma" here for some commentary on bitcoins and tax. I've given you the search page as a direct link to "Taxation" may not work.


I hope this helps but let me know if you have any further questions.

Customer: replied 3 years ago.

Just to clarify, that there are two taxable events:


 


The initial sale for USD, If the value of $100,000 at the time of sale is at the current rate of exchange £58,000, is the first taxable event, at £58,000


 


But by the time it hits my account a month or two later, its £59,000, that additional £1000 is a separate taxable event?


 


Or conversely, if it only comes through as £57,000, I can offset that £1000 as losses?


 

Expert:  TonyTax replied 3 years ago.
Gains on currency exchange are subject to CGT and losses are deductible so long as the money wasn't merely being held for personal domestic use.

When you sold the coins, the proceeds were £58,000. The exchange into sterling gave you another gain of £1,000. I'd also disclose that as a gain. If the exchange into Sterling had resulted in a loss of £1,000, I'd claim that as such.
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