UK crypto tax (Capital gains) and liquidity pools.

Just a friendly post to remind our UK audience about UK Capital Gains tax. I thought I would make this as I see more and more people entering the liquidity pool and thought some may find this useful. Just to be aware I do not have any knowledge on other countries crypto taxes.

Current UK Capital Gains allowance

Prior to April 23 you were able to have a very generous capital gains allowance of £12,300 unfortunately this has now changed to £6,000 for the 23/24 tax year. At the moment it is still planned to reduce further to £3,000 from April 24. The amount of tax you will pay is the same as your income tax (10% / 20% depending on income).

When will I pay Capital gains?

This is ever changing at the moment, but the long story short in the UK you will pay capital gains tax on any profit over £6,000. You won’t pay for losses and you can carry over losses to offset you capital gains, it’s always advisable to register these losses each year.

How do they know?

Currently the UK government is using Know Your Customer (KYC) to monitor who needs to pay taxes. Coinbase has been sending emails with those holding, receiving and sending large sums of crypto. If you are in doubt, I strongly suggest you contact HMRC to ensure you are not hunted later.

It’s the bear market, I don’t make gains…

So this is where it can become a little more confusing, if you are supplying to a liquidity pool, you are making gains each month on that specific token. Currently HMRC states that it will likely consider this as an income and you will be expected to pay capital gains. This also applies to airdrops.

Remember to always do you own research to protect yourselves and remember you can gift crypto to a spouse tax free. If they have not used their Capital gains allowance I strongly suggest you gift them to use their allowance and maximise the amount of crypto you get.

I am by no means an expert, ensure you check your local laws and regulations before making decisions.