Tuesday, December 29, 2020

HODL'd Bitcoin and UK Capital Gains / Tax implications

Hello all. Probably a bit premature to be asking this given my position, but it's something that's been nagging me for quite a while, so hope you'll indulge me :)

So, over the course of a few months in late 2019 and early 2020, I belatedly took the plunge into Crypto. I invested about 3.5K in BTC - which with the price at the time allowed me to acquire just over 0.6 of a bitcoin. I also left about £100 on Binance, which I've been experimenting with, swapping in and out of BTC and other altcoins as the cycles have shifted - but more on that at the end.

My main question is regarding my BTC holding. I had to purchase it in small chunks. I bought it all on Coinbase, but ran into issues transferring money into my Coinbase account. The website was fine with me transferring small amounts (I believe I did it in £500 chunks roughly) via card payment, but my two attempts at bank transfer of slightly larger quantities failed. According to Coinbase there was something in the description name of the transfer from my bank (Natwest) that caused the money to fail to be added to my account both times I tried, so this resulted in a refund back to my account. I did follow the guidance they gave on creating the transfer so I'm assuming Natwest by default put some of their own wording in the transfer description that screws up the automated process on Coinbase systems. Whatever the issue, after a couple of instances of the problem, the stress of worrying that the money might be lost, and the delays this caused me ( I was worried about the BTC price spiking and missing out on getting as much as I could - with hindsight, should have waited until the Covid/market dip in March, but I couldn't have known that was coming at the time!) - I gave up on lump-sum transfers and moved the money in over a couple of weeks in smaller card payments.

As I moved money in, I immediately bought BTC with it then promptly moved the BTC off Coinbase and safely into my Hardware wallet. So I have the total amount of BTC on this wallet. What I'd like to know now is that in the event that I want to sell all, part or even a small fraction of it, how will this work in terms of declaring for UK capital gains tax?

I view it as an overall amount, but I know it was bought on different days, in slightly varying quantities for marginally different prices. I do have the exact breakdown, but say I decide I want to liquidate 0.1 BTC of my holding, or my odd satoshis (about 0.056 BTC or so) - how does one declare that to HMRC? I don't expect this small amount to equate to enough to incur CGT (but it is worth more than I paid for it, and it might come in handy as emergency funds while I HODL the majority of the holding) but I know all asset sales have to at least be declared. How on Earth do you present the figures - if I sell a small percentage, how would I determine what it's purchase price was based on how I acquired the overall amount in such a staggered fashion as varying prices? As you can tell, I've never sold any assets before that required HMRC to be informed, so I'm a total newbie! Do I simply pick the tranch of BTC I bought at the lowest price and say it came from that, or inversely the highest price tranch? I've looked at HMRC's rules and it's so confusing, people don't just buy and sell exact quantities in easy to calculate equal measures, circumstances might require us to sell very odd fractions of our holdings - who is to say what the odd 0.1 of a total BTC holding actually cost? I'm not too worried about it at this moment, but what if BTC's price continues to rocket, what if selling satoshis suddenly equates to a more substantial sum? I want my HMRC declarations to be as honest and legit as they have to be as I don't want to make a stupid mistake and get stung unknowingly with an unexpected bill at some point in the future.

As an aside, that leads me to the £100 I left on Binance. As I said, I've effectively been gaming with it. I'm actually thinking of plowing that all into ETH and taking it off the exchange. Now, I honestly have no idea how many transactions I've done with it, but it's going to be lots of them over the course of a year. I confess I haven't really bothered much with record-keeping for such a relatively small amount. I was playing with gaming the market - I'd say I'm probably about 10% down on the original £100 value, and it's been cycled through many different altcoin transactions and broken up into smaller bits. Is it feasible to chuck that into one asset, transfer it off the exchange and HODL it? How much of a pain in the backside would it be to sell it should I need to? If I invested it in ETH, then ETH's price suddenly rockets, I don't even know how I'd declare the purchase price for it. Right now it's currently sat on the exchange in various fractions of different altcoins. Would I be expected to declare the entire history of how I arrived at consolidating the amount into one altcoin?

Like I said above, for these relatively small amounts, I dare say no-one would bat an eyelid if I didn't declare it, but if over time it accumulated proper value with CGT implications, what then?

Many thanks

Jim


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