Gifting is a common thing that people do on different occasions to show their love and appreciation for their friends and family. With the evolution of cryptocurrency, there is a new way to gift: crypto gift cards. According to His Majesty Revenue and Customs’s (HMRC’s) guidelines on crypto taxation, you might be liable to pay tax on crypto gifting in UK
What Is Crypto Gifting?
Crypto gifting is the practice of giving cryptocurrency as a gift. It can be done in several ways, such as by sending cryptocurrency directly to the recipient’s wallet address or purchasing a crypto gift card.
Tax On Crypto Gifts In UK
In the UK, gifting crypto now attracts a capital gain tax because it involves transferring crypto from one person to another. The only difference is nothing is received in return (no currency, no goods, no services, not even another type of crypto).
Crypto gifts are liable to capital gain tax in the hands of the sender (the person who makes the gift) unless they are gifting it to their spouse or civil partner
To understand it better, you can consider a gift as a notional sale! Gifting will be considered a notional sale at the market value on the date and time of gift.
So to arrive at the taxable value and tax liability, we need the price at which the token was purchased and the price on the day of the gift (notional sale). You will know if comparing the two is a gain or a loss.
If the crypto’s value has decreased compared to its purchase price, there is a notional loss. In comparison, if the value of the crypto’s cost has gone up compared to its purchase price, it’s a notional gain.
If there is a loss, there won’t be any liability to pay tax, but the loss has to be reported to HMRC to take the benefit of setoff with other crypto gains. In the case of a gain, tax is payable on the amount derived after considering all costs incurred to buy or sell crypto.
How To Calculate Tax On Crypto Gifts In UK?
When you gift crypto in the UK, you are considered to have disposed of it, and you may have to pay Capital Gains Tax (CGT) on the gain. The amount of CGT you pay will depend on the value of the gift, your personal CGT allowance, and your marginal tax rate.
Capital gain/ (Loss) = Disposal price – Cost basis
Cost basis = Cost of the Crypto + Allowable Expense (like transaction fee)
Non-Taxable Crypto Gifts
Here are few cases where crypto gifting is not taxable.
Gift To Spouse
Cryptos, when gifted to either of the spouses, are not considered to be taxable income. According to HMRC, the actual consideration is ignored when you give crypto to your spouse. On meeting the rules by HMRC, there won’t be a loss or gain. The disposal proceeds will equal the sterling allowable costs of the seller.
Gifting As Charity
Gifting crypto as a charity in the UK is not a taxable event. It means that you will not have to pay Capital Gains Tax (CGT) on the value of the cryptocurrency when you gift it to a registered charity.
However, if the charity sells the cryptocurrency later and makes a profit, it will be liable for CGT on the gain. The amount of CGT they pay will depend on their profit size and income tax band.
For example, if a charity sells cryptocurrency they received as a gift for £1,000 and makes a profit of £500, they will pay CGT of £200.
It is important to note that the charity must keep a record of the cryptocurrency gifted to them and the date and value of the gift. This is because they may be asked to provide this information to HMRC for tax purposes.
Real Life Scenarios
Case 1:
Alex gifts 1 BTC as a gift to his friend Bob. The value of 1 BTC was £30,000 when purchased. On the day of gifting, the value went up to £37,000. Here, Alex will have a tax implication on the gift made in the guise of a notional sale.
Tax liability for Alex is:
Taxable value = Sale value – cost basis
= £ 37000 – £30000
= £7,000
Since the CGT allowance is £6,000, there won’t be any tax liability on £6,000.
On the balance, a £1,000 – 10% rate is applicable.
Final tax liability = £100
Case 2:
Alex gifts 1 BTC to his wife. The value of 1 BTC is £30,000. What is the tax implication?
Here, Alex will not be attracting any tax as the gift is made to his spouse.
Conclusion
The tax treatment of crypto gifting in the UK is relatively straightforward. Gifting crypto to a spouse or civil partner is tax-free, as is donating crypto to a registered charity. However, giving crypto to anyone else is considered a taxable disposal, and you will be liable for CGT on any gains you have incurred at the time of gifting. It is essential to record all crypto gifting transactions for tax purposes.
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