Hey UK citizens! Thinking about the possibilities of avoiding crypto tax? From a survey we have conducted, we understood that many of them are hiding their cryptocurrency from the HRMC to avoid crypto tax, but honestly, it is not a good idea. Savvy investors use legal tax-saving strategies to save money.
There are several possible and easy ways to avoid crypto tax in the UK. keep on reading the article to know them.
10 ways to Avoid Crypto Taxes in the United Kingdom
Technically, there is no such way to legally avoid taxes, however, some strategies will help you legally reduce your tax bill.
1. Hold your cryptocurrency
This is the easiest way to avoid crypto taxes, you just have to hold cryptocurrency for the long term. There is no tax for holding back the cryptocurrency and for transferring between different wallets that the same person owns.
2. Take advantage of tax-free thresholds
Note: for most taxpayers in the UK, the first £3,000 of capital gains income earned is excluded from tax. If the total income exceeds £100,000, the tax-free threshold drops. Also, if the income goes beyond £125,140, the person associated with this will not be receiving any tax-free allowance.
3. Take profits in a low-income year
The UK is performing a progressive tax system. The income is directly proportional to the tax to be paid. Therefore, most of the investors choose to eject their crypto-assets in years when their income is low. This typically means, the tax burden can be reduced if crypto is sold in a year.
4. Harvest crypto losses
If you are selling the cryptocurrency at a loss, then you will have serious tax benefits.
Tax loss harvesting is a tactic when cryptocurrency losses are used to offset gains from cryptocurrency, stocks, and other assets.
The foremost thing is you should have a clear understanding of your loss to claim it on your return. A few examples of realization of loss include selling crypto, trading it for another cryptocurrency, or using it to make a purchase.
5. Make a crypto donation
If you are donating cryptocurrency to a registered charity and not receiving anything in return, this is considered tax-deductible. During donation, you can write off the fair market value of your crypto. Nevertheless, if the crypto value has increased after receiving it, a capital gain will be recognized.
6. Gift crypto to a significant other
Another method is to gift crypto to a spouse or civil partner since it is considered tax-free in UK. for the entire year, if your partner hasn’t utilized their tax allowance, you can gift your crypto to minimize that tax liability of disposal.
7. Hire a tax professional
This strategy will be helpful if you are a frequent cryptocurrency trader. You can seek help from tax professionals. This might be expensive since you have to hire an accountant, but it is worth the spend.
8. Invest in a SIPP
SIPP stands for Self-Invested Personal Pensions (SIPP). These are introduced to help you boost wealth by reducing the tax burden. For all the contributions made to SIPP, the HRMC pays 20% in tax relief.
During this time, holding back Bitcoin and other cryptocurrencies in a SIPP is not allowed, instead, you can invest in the VanEck Vectors Digital Assets Equity UCITS ETF, which is performing to track the price of companies with significant exposure to crypto and blockchain.
9. Relocate to a low-tax country
This is the hardest method to act. However, in order to save money, some investors choose to relocate to a country where crypton tax rates are lower. If we take Germany as an example, gains on cryptocurrency disposed of after a year or more are completely tax-free. You can also consider countries such as Singapore and the United Arab Emirates.
10. Use crypto tax software
It is important to know that, any mistake on a tax return can be expensive. You can review so many cases to know more about it. If any kind of inaccuracies occur because of the carelessness of the taxpayer, the HRMC will charge a penalty between 0 and 30% of the tax liability. Pay utmost attention while making any transaction across all of your wallets and exchanges; also keep detailed records of them. If you are finding the generation of crypto tax reports and identifying loss-harvesting opportunities strenuous, then you can use crypto tax software. This is very simple, you have to plug in your wallets and exchanges, import your transactions, and the software will do the rest.