HMRC class Bitcoin as an asset by HMRC. Therefore, if you make any profit, it’s subject to Capital Gains Tax.
Furthremore, Bitcoin cannot be held inside any type of ISA, which would normally be used to protect your investments in stocks, shares and cash from tax. Our Stocks and Shares ISA Guide will walk you through what investments can be held in an ISA.
As such, profits made on cryptocurrencies are treated in a similar way to investments held in a General Investment Account.
Ultimately, everyone’s tax situation is going to be different. However, the vast majority can use their Capital Tax Gains Allowance and therefore avoid tax on any profit under this amount. Beyond this point, most people will then pay 20%.
Example: you purchase £10,000 of Bitcoin and sell it at £30,000. You have now made a tidy £20,000 profit. You would deduct the tax-free allowance (currently £12,300 in 20/21) from the £20,000. This now leaves you with £7,700. On this remaining amount, tax is payable at a rate of 20% on the £7,700. Therefore, you would owe a further £1,540 in tax.
As always, seek advice from a tax professional.