Tax Loophole Found for UK Crypto Profits

Each country has its own systems for tax evaluation and collection, and some countries are stricter than others. One of the major issues governments have with cryptocurrencies is the difficulty in taxing profits made on trading. The United Kingdom’s HMRC (Her Majesty’s Revenue and Customs department) found this out the hard way.


Finance experts have warned that a loophole which reduces crypto gains to zero can be exploited on tax returns in the UK. It was reported that this could potentially deprive the government of millions in lost revenue.

UK pound notes

Gambling Winnings

HMRC will be expecting a large number of profit declarations on tax returns after the crypto market capacity soared by almost 2000% in the past year. However, the taxman could be seeing far less than anticipated due to a loophole which currently enables crypto profits to be declared as gambling winnings, which are not taxable.

A HMRC spokestperson said:

We don’t normally tax betting and gambling because it is usually not classed as trading income. But there may be circumstances where factors such as the degree of skill and organisation would make the activity more likely to be taxable as trading income. Each case will depend on its own facts.

Barrister Etienne Wong commented that the UK rules are expected to confuse amateur traders and investors as they are not clear on who should be considered as a gambler and who falls into the category of taxable investor.

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Outdated Policies

The current legislation has not been updated since 2014 when Bitcoin was worth around $500. If buying and selling cryptocurrencies is considered an investment, then participants would be liable for capital gains tax. The rates are 18% tax on any money over £11,300 ($15,600) if they pay a basic-rate tax and 28% if they are a high rate taxpayer.

Chartered accountant Robert Langston of Saffery Champness said:

It is difficult to see how the profits on mainstream cryptocurrencies such as Bitcoin could be seen as gambling profits. There may conceivably be some cryptocurrencies in which the markets are random, and therefore the profits could be treated as gambling.

It is clear that these guidelines will soon be amended amid further attempts to clamp down on crypto by France and Germany. If 2017 was the big bang of the crypto world, 2018 could well be the year of regulation.

Should crypto profits be taxed? Share your thoughts in the comments below.


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Source: Bitcoinist