Cryptocurrency losses can be worrying, especially when you’re not sure how or even if you can claim tax relief. Following recent downturns in the cryptocurrency market, it’s more important than ever for cryptocurrency owners to be aware of how they can access relief. Let’s take a look at the process and find out exactly what to do in the event of a loss.
Can I claim tax relief on cryptocurrency losses?
The good news is that HMRC do permit you to claim tax relief on cryptocurrency losses, but only as an individual – there are no current guidelines from HMRC pertaining to cryptocurrency loss for companies. So, while businesses will have to wait and see if this changes, you can get started on claiming relief for any personal cryptocurrency losses.
Cryptocurrency is taxed under Capital Gains Tax, which you’ll have to pay when you dispose of cryptocurrency assets. If your cryptocurrency loses its value, you can make what’s known as a negligible value claim – essentially, this means declaring that the cryptocurrency is now worthless. This is classed as disposal of the asset, so you can get tax relief for your losses.
How do I claim tax relief?
The first step to claiming tax relief is to crystallise the loss. You need to declare the loss to HMRC by reporting it on your Self Assessment tax return, or, if you are not registered for Self Assessment, you can declare the loss by writing to them. However you report it, be sure to let them know the current value of the cryptocurrency. Once they’re aware of the loss, they can start to process your claim.
Making HMRC aware of the loss allows you to start a negligible value claim. Keep in mind, however, that you must own the cryptocurrency in question at the time that claim is made. If you’re backdating a claim, you need to have been the owner on that date, and the cryptocurrency must have been of negligible value at the time.
Negligible value claims apply only to cryptocurrency that has lost its value. If you lose cryptocurrency via theft or fraud, you cannot claim tax relief on it, as this is not considered disposal in relation to Capital Gains Tax.
Some expenses can be deducted when calculating a loss. These include the initial payment made for the cryptocurrency, costs involved in drawing up a contract for the purchase and disposal of the cryptocurrency, and money spent on behalf of a buyer or seller. However, certain expenses are excluded from deduction, such as equipment used to ‘mine’ for cryptocurrency.
Remember, there is no need to rush: you have four years to make your claim from the end of the tax year when the loss occurred. This means you have time to gather all relevant information and ensure the details of your claim are correct before you submit it.
If you have any questions or concerns about claiming tax relief for cryptocurrency, you’re in the right place. Here at AccountantFor, we can pair you with an accountant specialising in cryptocurrency who can support and advise you if you need to claim tax relief, and help you to identify and achieve your accountancy needs and goals.
Last Updated on September 22, 2023 by Michael Bush
Michael is the owner of AccountantFor, which is part of the Bula Media group. As an experienced business owner and investor, Michael wanted to build AccountantFor through his personal experience of his frustration in finding the most suitable accountant for his requirements. In addition to this, we bring a number of expert views from accountancy and financial experts to help small businesses and sole traders.