So I have a question regarding UK tax and crypto. I’ve only just started dipping my toes in crypto since December. I can say with confidence that I’m at a loss so far but that’s OK I’m in for the long run so no intention of selling.
My question is regarding Defi specifically. HMRC state that staking rewards from defi are to be counted as income (unless the rewards get paid out in one lump sum which then may count as CG).
So say (hypothetically ofc) I earn over £1000 in staking over the year and must declare the income. When I go on to sell those rewards for profit down the line I would also have to pay CG if over £12.5k for that year.
So am I right in thinking that we would potentially be paying double the tax (once for the income and once for future sale)
Apologies if it’s a dumb question and maybe I haven’t understood well. Seems stupid to me having to declare income on something the government doesn’t regard as currency but rather an asset. Until u sell it won’t benefit me in the slightest in the real world.
Thanks in advance.
Staking rewards have sufficient characteristics to be seen as interest and therefore taxed as income. You would indeed be chargeable under capital gains rules if you sell down the line but your base cost would be whatever has been taxed and so it wouldn’t be taxed again but would be used to offset the profit.
It is not double taxed. If you earn $1000 in staking and sell for $1,000 your capital gain is $0.
If you earn $1,000 staking and it increases in value to say $20,000, then you pay tax on a capital gain of $19,000 (the difference between you sale proceeds and your cost base).
Yes. The price of the coin at the time you receive it becomes your cost base, and so if it then appreciates you will have a gain.