In most cases, individuals hold cryptoassets (such as Bitcoin) as a personal investment, usually for capital appreciation in its value or to make purchases. They will be liable to pay Capital Gains Tax when they dispose of their cryptoassets.

This includes: 

• selling tokens
• exchanging tokens for a different type of cryptoasset
• using tokens to pay for goods or services
• giving away tokens to another person (unless it is a gift to your spouse or civil partner)

If the taxpayer’s activity is trading, then Income Tax will take priority over CGT and will apply to profits (or losses).

Individuals will be liable to pay Income Tax and National Insurance Contributions on cryptoassets which they receive from:

• their employer as a form of non-cash payment
• mining, transaction confirmation or airdrops

There may also be cases where an individual is running a business which is carrying on a financial trade in cryptoassets and will therefore have taxable trading profits.

As with Income Tax personal allowances, taxpayers have an annual exempt amount for Capital Gains Tax (CGT) which is forfeited if not used. The annual exemption for individuals in 2021-22 is £12,300.

Whilst most taxpayers are aware of their annual tax-free allowance and the exemption for the qualifying sale of the family home there are other items that are exempt from CGT.

These include:

• your car
• personal possessions worth up to £6,000 each, such as jewellery, paintings or antiques
• stocks and shares you hold in tax-free investment savings accounts, such as ISAs and PEPs
• UK Government or 'gilt-edged' securities, for example, National Savings Certificates, Premium Bonds and loan stock issued by the Treasury
• betting, lottery or pools winnings
• personal injury compensation
• foreign currency you bought for your own or your family's personal use outside the UK

A husband and wife each have a separate exemption. This also applies to civil partners who are treated in the same way as married couples for CGT purposes. Married couples and civil partners should ensure that assets sold at a gain are either jointly owned or that each partner utilises their annual exempt amount wherever possible. Any unused part of the annual exempt amount cannot be carried forward and is forfeited if unused in the current tax year.

In general, there is no Capital Gains Tax (CGT) on a property which has been used as a main family residence. This relief from CGT is commonly known as private residence relief.

However, there are some grey areas which might result in CGT being due on the sale of a private residence. One of these areas to consider is when disposing of garden or grounds belonging to the property.

The entitlement to private residence relief is usually only available if the garden or grounds, including the site of the house, is no greater than 5,000 square metres (a little over an acre). Larger gardens and grounds may qualify but only if they are appropriate to the size and character of the property and are required for the reasonable enjoyment of it.

Taxpayers are still entitled to relief if they dispose of land that they occupy as their garden or grounds, up to the permitted area, at the time of disposal. The garden or grounds includes the buildings standing on that land. HMRC’s guidance is clear that a building that is not part of a dwelling house can still qualify for relief if it’s within the permitted area of garden or grounds.

No relief is allowed for land let or used for a business or for land that has been fenced or divided off from your garden for development.

When a taxpayer owns a business as a sole trader or in partnership, a capital gain will be deemed to arise if the business is converted into a company by reference to the market value of the business assets including goodwill. This could give rise to a chargeable gain based broadly on the difference between the market value of the assets and their original cost.

However, in most cases the incorporation of the business will be completed in such a way so as to satisfy the conditions necessary to secure incorporation relief. One such condition is that the entire business with the whole of its assets (or the whole of its assets other than cash) must be transferred as a going concern wholly or partly in exchange for shares in the new company.

It is important to note that where the necessary conditions are met, incorporation relief is given automatically and there is no need to make a claim. The relief works by reducing the base cost of the new assets by a proportion of the gain arising from the disposal of the old assets.

Although the relief is automatic it is possible to make an election in writing for incorporation relief not to apply. An election must be made before the second anniversary of 31 January next following the tax year in which the transfer took place e.g., an election in respect of a transfer made in the 2020-21 tax year must be made by 31 January 2024. The election deadline is reduced by one year if the shares are disposed of in the year following that in which the business was incorporated.

As with Income Tax personal allowances, taxpayers have an annual exempt amount for Capital Gains Tax (CGT) which is forfeited if not used. The annual exemption for individuals in 2020-21 is £12,300. A husband and wife each have a separate exemption. This also applies to civil partners who are treated in the same way as married couples for CGT purposes.

Married couples and civil partners should ensure that assets sold at a gain are either jointly owned or that each partner utilises their annual exempt amount wherever possible. Any unused part of the annual exempt amount cannot be carried forward and is forfeited if unused in the current tax year.

CGT is usually charged at a simple flat rate of 20%. If you only pay basic rate tax and make a small capital gain, the gain may be subject to a reduced rate of CGT of 10%. Once the total of taxable income and gains exceed the higher rate threshold, the excess will be subject to 20% CGT. A higher rate of CGT (8% supplement) applies to gains on the disposal of chargeable residential property.

If you have sold or are planning to sell any assets in the current tax year, 2020-21, it is important to ensure that you take full advantage of the annual CGT exemption and arrange your affairs to ensure the optimum CGT position. For example, capital losses are deducted from gains before net gains are calculated. Crystallising a loss that will waste the annual exemption should therefore be avoided.