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
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