- Cryptocurrency gifts are gaining in popularity, but you need to be aware of the tax implications
- Both the giver and the recipient must take steps to ensure a smooth process
- Don’t let the tax man ruin a lovely surprise!
Gifting cryptocurrency is easy and, potentially, very fruitful for the recipient. However, you need to consider the tax side of things before you go ahead and spray your nearest and dearest with shitcoins galore. This article provides you with a brief summary of what to consider if buying cryptocurrency gifts in the UK this Christmas to make sure you don’t fall into a tax trap.
Gifting is a Taxable Event
When you buy cryptocurrency, no matter who it’s for, you will still be liable to pay tax on any gains that you make in between the time you buy it and the time you gift it. This is because HMRC treats the gifting of assets as disposal of them, which is a taxable event, unless you are gifting to a spouse/civil partner or charity, when it won’t be taxed.
So let’s say you’re buying ₿0.1 to split between four family members. The first thing you need to do is record the amount of money you spent on the ₿0.1 – this will form the basis for any tax gains or losses. In an ideal world you should send the four portions out the moment you buy them as this will ensure that you don’t have any losses or gains to account for, making your life much easier.
When you send out the ₿0.025 to each of the wallets you should note down the fiat value of each of the four pieces and the addresses you sent them to, as well as the date of buying and sending (you should be keeping records like this already). Also note down that these were gifts, especially if they were to a spouse/civil partner.
Record Transaction Details
When it comes to tax calculation time, there’s a reason why cryptocurrency tax software is now essential. In March 2021, HMRC included a ‘pooling’ feature into tax calculations which uses a formula to take into account pre-existing holdings of cryptocurrencies when calculating capital gains tax. In practice this means that if you held bitcoin when you bought the ₿0.1 to divvy up, you will have to take those other holdings into account when working out your tax. This is at best time consuming and at worst impossible for the regular person (or even a crypto accountant) to work out.
By plugging your transactions into tax software such as Koinly, the algorithms will take care of these calculations for you, leaving you with the crucial figures you need to know in order to get your tax payments right. This is why it’s better to buy the cryptocurrency to be gifted at the time you want to gift it rather than days or weeks before, as this can impact your own tax affairs. You won’t get away with saying that you gifted it but left it in your wallet – it has to be moved to prove it was gifted.
Consider a Time-locked Wallet
If you can’t gift it the cryptocurrency on the day you buy it, consider sticking it in a time-locked wallet to be opened on the day of celebration. That way you can show you gifted it without the recipient being notified early. Also don’t forget to tell the recipient to make a note of the value of the cryptocurrency on the day it arrives for their own records, as they may have to pay tax if they sell for a profit.
Gifting cryptocurrency is a great idea, and if done properly you can avoid a tax headache that could ruin the treat.