- Cryptocurrency gifting is not something that too many will consider when planning their portfolios
- Gifting is not intended to benefit the gifter, but done the right way it can reduce your crypto tax bill
- Professional advice should be sought before giving away your assets
Cryptocurrency tax is never a fun thing to think about, but it’s essential if you don’t want to end up paying huge fines, or worse, because you didn’t file your tax return properly – or at all. Happily there are some areas of cryptocurrency tax that can make life a bit easier on you, one of which is gifting. However, it’s important to know the advantages and disadvantages before you go giving away your precious coins or NFTs.
Please note, this is general advice and is not specific to any particular country.
Gifting Assets Can Spread the Tax Load
Gifting assets allows individuals to share the tax burden of their investments with loved ones with the advantage that the total amount of tax paid is reduced come the time of sale. In countries that have capital gains tax thresholds, such as the UK, gifting can also be used to make use of these tax free allowances.
Gifting assets is defined pretty easily – it is essentially the act of formally giving up all rights to ownership and expectations of future profit from an asset. It’s the same as selling a digital asset on an exchange, except that you don’t get any money for it. And worse, you have to pay tax on any gains you made, even though you’re not getting any money in return. The amount of tax you pay on a gifted asset is calculated in just the same way as if you had sold it – the value of the sale minus the value of the purchase.
The only way you could potentially get away with gifting an asset and not paying capital gains tax is by gifting it to your spouse, which is generally overlooked by tax authorities, as long as you are both domiciled in the same country.
Avoiding Personal Benefit
Once the gifted asset is in the other person’s possession the tax liability falls on them, allowing them to use any tax allowance they may be entitled to. The advantage here is obvious – if you have a big family you could, in theory, split your entire crypto portfolio between all of you and end up paying very little tax on cashing out day. Or if you are married and one of you doesn’t work, gifting your assets to them would result in a lower overall tax bill.
Of course, things are not as simple as just waltzing off with less tax to pay. As the gifter, you are not allowed to directly benefit from the asset you have just gifted. This means that any money realized from the sale of assets you have gifted cannot go into your bank account, or any joint accounts you hold with the recipient. It must be held by the person you gave the gift to, although of course there are grey areas when it comes to money being mingled together afterwards. This is why it is always best to seek a tax professional’s advice before embarking on gifting.
The idea of gifting is not so you can personally benefit, but if you play your cards right you could nevertheless personally benefit from gifting your digital assets to a third party. Just make absolutely sure of the ramifications before you do.