How To Not Pay Taxes On Bitcoin?

When cryptocurrency is traded, that is when selling, transferring, exchanging or disposing of altcoins or cryptocurrency happens, a tax is charged if any profit or gain is earned during the exchange. This tax is called the capital gains tax.

However, there are a few assets that are exempted from such taxes. These include your home or any of your personal property or something that you own. If it is worth less than 6,000 pounds then you are free from that particular tax.

On the contrary,if you possess shares, investments and second properties that generate any additional income for you then you are bound to pay capital gains tax.

A personal CGT allowance happens every year for every citizen who is financially independent. This allowance period is usually between 6th of April to 5th of April. This is enough for several investors who placed their bet in crypto and can easily ignore the tax liability.

If there is any extra or additional gain or profit made then the allowance is charged to CGT. The tax percent is either 10 per cent or 20 percent on an average. The citizen’s total taxable earnings in that particular financial year is also a factor that decides the tax percentage that is charged over the gains.

There are several individuals who have been earning and investing a lot since a good number of years and they know the loopholes or tricks using which they can easily avoid paying such taxes and even exempt themselves from paying taxes completely in a few cases.

We have listed a few things that you should consider before calculation or figuring out your capital gains tax liability on the investment that you have made in cryptocurrency.

1.   Take The Benefit Of The CGT Allowance

An annual capital gains tax allowance is granted to every citizen. This allows them to earn profit on investments of up to 12,300 pounds without having the liability of paying any taxes. If you do not avail this allowance and it is left unused then it cannot be used in the successive year that is it cannot be saved for another year, you are supposed to use each year’s allowance in that particular year itself.

It is advised that you make use of this tax-free allowance every year completely so you do not end up wasting it. This also reduces the risk of having a big bill of capital gains tax in the coming financial years.

2.   Make Use Of Losses

If the total profit in the financial year surpasses the annual allowance then selling some assets at a loss will be a good idea. Yes, you heard me right. Let me explain to you why. Profit and losses made in a particular financial year should be offset against one another because that will gradually decrease the sum of profit that is liable to paying tax.

When crypto assets are exchanged, that is when they are bought or sold, it involves a few additional costs that can be deducted from the profit that is incurred when you are forming your capital gains tax bill. The additional costs may include the transfer fee, exchange fees, gas fee, etc. If you hired a professional for carrying out the work of your crypto assets such as accountants or lawyers for some sort of legal work then their payments can be deducted from the capital gains tax bill as well.

3.   Transfer The Assets

Two people means you get bonus allowance if the two are clubbed together. You can easily transfer your assets to your partner. Assets can be transferred between civil partners too just how it can be transferred between husband and wife. Capital gains tax allowance gets doubled in such cases provided that the transfer should be absolutely genuine and done keeping all the legal terms in mind.

4.   Bed And Breakfasting

There  was a loophole that people used to use in order to reduce their capital gains tax on their gains incurred through cryptocurrency. People used to sell the asset on which they had a gain to use up a part of their Capital gains tax allowance. This was called ‘bed and breakfasting’. But it is no longer possible to do so.

But the intelligent investors found another loophole. Family always comes to rescue and it is applicable in this case as well. When you sell out the asset on which they had a gain, they used to buy it back but it is not allowed to buy the crypto again just the next day or within the next 30 days. But your spouse or your civil partner can buy the assets again and there are no conditions in that.

5.   Pension

The tax on your capital profits can be drastically reduced from 20 per cent to 10 per cent by simply contributing to pension. You need to have appropriate net earnings. The upper limit of a citizen’s income tax amount is extended by contributing to pension by the sum of the total contribution.

Let’s consider an example where the CGT liability reduces to 10 per cent from 20 per cent. Say a potential investor makes a total pension contribution of 10,000 pounds then the higher tax rate will increase to somewhere around 56,000 pounds from 46,000 pounds. The capital gain after getting added to the rest of the taxable income in that particular financial year is realised and it should fall within the extended personal allowance.

Conclusion

This article explicated the readers about what taxes are charged on capital gain through crypto or bitcoin. We also shared a few simple techniques or hacks that can be used to reduce taxes on capital gain and even get rid of taxes completely. Keep in mind that you should study all the legalities before you invest and try to save the money that gets flushed into taxes. You may want to consult a professional if the amount that you are trading is very big. You can easily start trading with Yuan Pay. You can also start learn trading easily Coinlib Academy.