How to Avoid Capital Gains Tax on Cryptocurrency? – 5 Legal Ways

Cryptocurrency is a hot topic right now, and for good reason. It offers investors the potential for high returns while avoiding the traditional risks associated with stock markets. This means that there is a lot of money to be made if you know how to avoid capital gains taxes on cryptocurrency. This article will outline 5 legal ways to do just that.

What are Capital Gains Taxes in UK?

In the UK, capital gains tax is a tax levied on the profits made on the sale of assets, such as stocks, property, and investments. The rates of capital gains tax vary depending on the type of asset sold, with higher rates applied to more expensive assets. There are also specific exceptions to the rule that allow certain types of transactions to be treated as capital gains free of tax.

Capital gains taxes can significantly burden individuals and businesses trying to generate income from their investments. It is important to understand how capital gains tax works in order to avoid paying unnecessary taxes. There are a number of legal ways to reduce or avoid capital gains taxation in the UK.

How much is Capital Gains Tax for Crypto in UK?

Cryptocurrencies are not considered “real” currencies in the eyes of the UK tax authorities, so capital gains made from their trading and investment are generally taxed at a much lower rate than income from traditional investments.

There is no specific cap on how low your capital gains tax liability can be – it all depends on the amount of profit you make and the tax brackets that apply to you. In general, if your total gains from creating cryptocurrency transactions (including any profits made from selling off your coins) total less than £11,700 in an entire year, then you won’t have to pay any capital gain taxes at all!

However, if your total profits from crypto-related activities exceed this threshold – or if you’re in one of the higher tax brackets – then you’ll have to pay a 20% surcharge on all profits over £11,700. So if you make £12,000 in profits from crypto trading in 2018, for example, you’ll owe 20% of that (£2,400) in taxes.

Fortunately, there are a number of ways that cryptocurrency traders can avoid paying capital gains taxes altogether. The most common way is to buy and hold cryptocurrencies – meaning that you don’t actively trade them – and wait for them to appreciate in value over time. This strategy will typically result in a lower taxable gain than if you were to make regular short-term trades based on market fluctuations.

How to Avoid Capital Gains Tax on Cryptocurrency? – 5 Legal Ways

You can do a few things to avoid paying capital gains tax on cryptocurrency investments. Here are 5 legal ways:

1. Buy crypto in an IRA

If you have an IRA account, there are a few ways to buy cryptocurrency without incurring capital gains tax. One option is to use a custodian service that the IRS has approved. Another is to use a digital asset exchange that is registered with the IRS as a qualifying virtual currency exchange.  You can also buy cryptocurrency with government-issued currency, such as USD or EUR. This is a good option if you want to avoid capital gains taxes.

2. Declare your crypto as income

Cryptocurrencies are considered income and, therefore, subject to capital gains tax. There are a few legal methods through which you can avoid paying taxes on cryptocurrency investments.

1. Buy and hold
2. Capital loss
3. Use exchanges
4. Use a custodian
5. Use a Bitcoin IRA
6. Use a cryptocurrency hedging strategy
7. Use a cryptocurrency index fund
8. Use cryptocurrency derivatives
9. Use a cryptocurrency swap
10. Use a cryptocurrency portfolio

If you are a UK taxpayer, you will have to pay capital gains tax on your cryptocurrency profits if you sell them for more than their original purchase price. If you are a foreign taxpayer, the tax rules may be different.

3. Hold onto your crypto for the long term

If you are holding onto your cryptocurrencies for the long term, you may be exempt from capital gains tax. There are a few legal ways to avoid this tax. One way is to sell your cryptocurrencies and hold the proceeds for over a year.

This will allow you to qualify for the long-term capital gains exemption. Another way is to use a cryptocurrency IRA account. This will allow you to defer paying taxes on your crypto profits until they are withdrawn in retirement.

Finally, you can also use a crypto-based estate planning strategy. This will allow you to pass on your cryptocurrencies without having to pay taxes on them.

4. Sell Crypto assets during a low-income year

If you want to sell your cryptocurrency holdings during a low-income year in the UK, there are a few legal ways to do so. One option is to use a cryptocurrency exchange that allows for the sale of cryptocurrencies and fiat currencies. Another option is to sell cryptocurrencies through an online marketplace. Finally, you can also sell your cryptocurrencies directly to other people via online chat or messaging services.

Regardless of the method you choose, make sure to take into account capital gains tax implications when selling your cryptocurrency holdings. Capital gains tax is a tax on profits made from the sale of assets, and it applies if your holding has increased in value since you bought it. To avoid paying capital gains tax, make sure to track the value of your holdings regularly and factor in any changes in price when making decisions about whether or not to sell.

5. Offset crypto gains with losses

The taxman is coming for your crypto gains; there’s no way to avoid it. But you can minimize your tax burden by offsetting any cryptocurrency profits with losses from earlier investments. Here are four legal ways to do just that:

1. Buy back into the market: If you sold your cryptocurrency holdings and made a capital gain, you may be able to buy them back at a lower price and offset that gain with a loss on the original sale. This strategy is especially useful if you sold at an inflated price and bought back in at a more reasonable rate.

2. Use losses from other ventures: If you’re trading cryptocurrencies for profit, you may also have incurred losses in other ventures, such as trading stocks or investing in real estate. You can use these losses to offset your cryptocurrency profits, provided they’re from business ventures that produce taxable income.

3. Claim IRA contributions: If you made qualifying contributions to an individual retirement account (IRA) during the year, those funds might be available to help reduce your taxable income. Contributions of Bitcoin and other cryptocurrencies are considered qualified contributions since they’re considered property rather than cash incomes.

4. Use estimated taxes: The IRS allows taxpayers some flexibility when filing their taxes each year by estimating their income and deductions based on information available at the filing time instead of waiting until actual payments are due. This can give taxpayers some headroom to make adjustments if needed – including when it comes to cryptocurrency profits and losses.

Conclusion

When it comes to starting with cryptocurrency, capital gains tax is something that many people are unsure of. This article discusses five legal ways to avoid capital gains tax when selling cryptocurrencies. We would love to hear your thoughts and opinions in the comments below!