Claiming Tax Relief on Your Cryptocurrency Losses (Luna)

Tax return filing for relief on Luna Cryptocurrency losses.

We released an article some years ago that examined how cryptocurrency revenues may be taxed. However, you may have lost money when the market crashed. As a result, this post will go over your choices for seeking tax relief on cryptocurrency losses.

The latest guideline from HM Revenue now provides some insight into obtaining tax relief on cryptocurrency losses – but only for individuals. HM Revenue has yet to issue their business and company guidelines. Despite the appointment of a cryptoassets task force by the chancellor, no special tax law for cryptocurrency transactions has been implemented.

How do I declare crypto losses on my taxes?

Individuals investing in cryptocurrencies are most likely subject to capital gains taxation. As a result, requesting tax relief on cryptocurrency losses will be subject to capital gains tax laws.

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What expenses can be deducted when calculating a loss?

Certain expenses are deductible when computing your loss, and these are as follows:

  • The first payment in money for the cryptocurrency.
  • Transaction fees paid prior to a transaction being posted to a blockchain.
  • The initial ‘expense’ of exchanging one cryptocurrency for another.
  • Any advertising spent on behalf of a buyer or a vendor
  • The expenses of valuing or apportioning assets or liabilities in order to determine profits or losses. This might include the cost of a software subscription to calculate gains or losses.
  • Professional expenses for establishing a contract for the purchase or sale of cryptocurrency

In these cases, however, you cannot claim for the costs of mining activities (such as equipment).

How much of a loss can you claim on crypto?

If you still possess cryptocurrency and it has become worthless or of minor value, you can crystallize capital losses. Simply put, a negligible value claim considers the cryptocurrency to have been disposed of and reacquired at the sum mentioned on the claim.

Because bitcoin is pooled like shares, the insignificant value assertion must be made in relation to the whole pool, rather than the individual cryptocurrency units/tokens.

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Making a claim of minimal worth

To make an insignificant value claim, the following conditions must be met:

  • The cryptocurrency must be owned at the time the claim is submitted.
  • You must indicate the cryptocurrency’s value at the time of the claim. There is no formal definition, however according to HM Revenue, an asset has minimal value if it is worth next to nothing.

Reversing a claim

You can backdate an insignificant value claim if the following requirements are met:

  • You possessed the coin at the period mentioned previously.
  • At the time, the cryptocurrency had lost its value. The earlier time must be no more than two years prior to the start of the tax year in which the claim is submitted.

For example, you may file a claim on April 5, 2020, and it would be carried back to April 6, 2017.

This might be beneficial if you haven’t generated any capital gains in the current tax year but have in the prior two. Because your cryptocurrency must have already lost value at the time the claim is being backdated, this will be relevant only if the prospect of a negligible value claim was previously disregarded.

Tax on lost or stolen crypto in the UK

You may misplace your private key, rendering you unable to access your cryptocurrency. The private key still exists, but you no longer have access to it. Likewise, the coin is still there on the distributed ledger. As a result, losing your key does not constitute as a disposal for Capital Gains Tax purposes, and no loss may be claimed.

However, if you can demonstrate that there is no chance of retrieving the private key or accessing the cryptocurrency stored in the related wallet, you may be able to make an insignificant value claim (see above).

There is always the possibility of being a victim of theft or fraud if you invest in cryptocurrency. Because the individual retains ownership of the assets, HM Revenue does not consider theft to constitute a disposition. They have the right to retrieve them as well. This implies that victims of theft cannot claim a capital gains tax loss.

Furthermore, if you do not get the cryptocurrency for which you paid, you may be unable to claim a capital loss.

If you pay for and get cryptocurrencies, you may be able to make an insignificant value claim if it later proves to be worthless.

Gm professional accountants have offices located in London Canary wharf, London Wimbledon ,Ilford Essex and Birmingham.

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