Lost cash on Bit­coin? Off­set it against your tax

The dig­i­tal cur­rency may be past its peak, but Harry Bren­nan says there can still be a sil­ver lin­ing

The Sunday Telegraph - Money & Business - - News And Comment -

Was 2018 the year the Bit­coin bub­ble fi­nally burst? In­ter­est in the dig­i­tal cur­rency picked up in 2017, snow­balling into hys­te­ria when its value soared from around $1,000 (£818) in Jan­uary to $19,000 by De­cem­ber. To­day, a Bit­coin is worth less than $4,000.

None of the ma­jor dig­i­tal cur­ren­cies es­caped, with pop­u­lar al­ter­na­tive Car­dano fall­ing by 97pc from its 2017 high. An­other, Ethereum, has lost 87pc of its value since sum­mer 2017.

The cryp­tocur­rency mar­ket as a whole has had 86pc of its value wiped off from its peak to the end of 2018. Those who got in and out early made a killing. Those who didn’t suf­fered.

But there is a sil­ver lin­ing for any­one nurs­ing those losses, as newly pub­lished tax guid­ance has re­vealed that you can use your lost money to off­set fu­ture bills on cap­i­tal gains.

Some experts are even help­ing crypto in­vestors to cut their tax bills ret­ro­spec­tively.

The guid­ance leaves no doubt that these in­vestors have to pay cap­i­tal gains tax (CGT) on any prof­its they make buy­ing and sell­ing dig­i­tal cur­ren­cies over the an­nual ex­empt amount of £11,700.

The rules are not strictly new but un­til re­cently were not well es­tab­lished and some were able to dodge the tax by declar­ing their gains as gam­bling wins, which are tax free. Now, any­one who made gains in the 2017-18 tax year will have to de­clare them to the tax­man and pay any du­ties due be­fore the end of Jan­uary or they may face penal­ties.

Any­one who lost money by in­vest­ing in crypto should also de­clare them, as CGT rules al­low you to deduct your losses to re­duce the tax on fu­ture gains, po­ten­tially sav­ing you thou­sands of pounds in the long run.

Say you in­vested just over £10,000 in Bit­coin at its height, only to see that in­vest­ment dis­ap­pear. You de­clare that loss to the tax­man. Later, you make a cap­i­tal gain of £50,000 by sell­ing some long-held shares.

A higher-rate tax­payer would be taxed on the gain at a rate of 20pc, re­sult­ing in a bill of £7,660 once the ex­emp­tion had been taken into ac­count. How­ever, you can use your pre­vi­ous £10,000 loss to off­set this, de­duct­ing it from the to­tal gain, re­duc­ing your bill by around a quar­ter and sav­ing you £2,000 in need­less tax.

Chris Ether­ing­ton of RSM UK, a tax con­sul­tancy, said some of his clients made mas­sive gains in­vest­ing

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