How to Avoid Crypto Capital Gains Tax in the UK: 10 Legal Ways

The Bitcoin you just sold has increased since you originally purchased it. More money in your pocket makes you happy, but then you realize you must pay taxes on your profit. This tax, known as the Capital Gains Tax (CGT), is levied when you sell or trade bitcoin for more than you originally paid. CGT applies to cryptocurrency like other assets, such as stocks in the UK.

Avoiding CGT entirely might be difficult, but plenty of legal ways exist to reduce your crypto tax liability. This article will walk you through 10 simple strategies to help you keep more of your crypto gains. 

Let crypto accountants show you how to avoid or reduce your CGT burden in the UK legally!

1. Maximise Your Annual Exemption Allowance

A person's yearly CGT exemption is the amount of money they can gain from selling assets, including cryptocurrencies, in the UK without paying taxes.

How it works: For the 2024/25 tax year, the annual exemption is £3,000 for individuals and £6,000 for married couples or civil partners. This means you can sell crypto assets and make a profit up to the exemption limit without paying CGT.

How to use it: If you have crypto assets worth more than the exemption limit, you can sell them over multiple years to keep your gains under the threshold. For example, if you’re sitting on £15,000 in crypto profits, you can sell £6,000 worth this year and save the remaining for next year.

2. Offset Capital Losses Against Gains (Loss Harvesting)

You can lower the amount of CGT you pay if you sell a cryptocurrency asset at a loss.

How it works: Suppose you made £15,000 profit on one crypto sale but lost £5,000 on another. You can subtract the £5,000 loss from your £15,000 gain, leaving you with a net gain of £10,000. You’ll only pay CGT on the £10,000 profit, not the entire £15,000.

How to use it: If you have made a loss on any crypto assets, don’t just let them sit there. Reduce your tax liability by offsetting such losses against your earnings. You can carry forward losses to offset gains in future years, too.

3. Use Tax-Advantaged Accounts: ISAs and Pensions

Investing in tax-efficient accounts like ISAs (Individual Savings Accounts) and pensions is one of the easiest ways to avoid CGT on cryptocurrency.

ISAs (Individual Savings Accounts)
The great thing about an ISA is that any profits from cryptocurrency held within the account are exempt from CGT. In other words, you don't have to pay taxes on the profits when you sell your cryptocurrency.

How to use it: You can contribute up to £20,000 annually to an ISA. You can’t directly hold cryptocurrency in a standard ISA, but some innovative crypto investment products can be held within an ISA. That’s how you can benefit from tax-free gains.

Pensions (SIPPs)
Investing in a Self-Invested Personal Pension (SIPP) is another option to avoid CGT. While your crypto assets grow in a pension fund, you don’t pay any tax on the capital gains until you start withdrawing your pension.

How to use it: Contributing to a pension lets you grow cryptocurrency investments while delaying CGT payments until retirement.

4. Gift Cryptocurrency to Family Members

Transferring cryptocurrency to a spouse or family member in a lower tax bracket can help reduce your CGT exposure.

How it works: CGT does not apply to gifts given to your spouse or civil partner. Therefore, your spouse may pay less CGT when they sell the asset if they are at a lower tax rate.

How to use it: Consider gifting crypto assets to your spouse or civil partner to take advantage of lower tax rates. CGT may still apply if you give gifts to other family members, but they might be in a lower tax bracket and pay less.

5. Use Business Asset Reliefs

If you own shares in a cryptocurrency-related company, you may be eligible for Business Asset Disposal Relief (BADR), which reduces the Capital Gains Tax (CGT) rate to 10% on qualifying gains. To utilize this relief, ensure you meet the following criteria:

Ownership Duration

You must have held the shares for at least two years up to the date of disposal.

Company Status

The company should be a trading company or the holding company of a trading group. A trading company carries on trading activities and does not have substantial non-trading activities.

Personal Company Definition

You must hold at least 5% of the company's ordinary share capital and voting rights. Upon winding up, you should be entitled to at least 5% of the company's distributable profits and net assets.

Role in the Company

You must be an employee or office holder (such as a director) of the company or a company in the same group.

6. Private Residence Relief for Your Home

Your home's profits are usually free from CGT if you sell it and it has been your principal residence. However, you may receive less relief if you have utilized some of your land for business or cryptocurrency mining.

How it Works: You are exempt from paying CGT on any profits you make from selling a home that has been your primary residence.

How to use it: Only sell your primary residence to benefit from this relief. If you’ve rented out part of your home or used it for business purposes (including crypto mining), this may reduce the relief you can claim, but it’s still worth looking into.

7. Consider Using Trusts

Trusts can help pass crypto assets to future generations while minimizing CGT.

How it works: Some types of trusts allow you to transfer crypto assets without incurring CGT, primarily if held for an extended period.

How to use it: Expert guidance is important due to the complexity of trusts. They can be great for estate planning and long-term wealth transfer while reducing CGT liability.

8. Invest in EIS or SEIS-Approved Crypto Projects

Government-backed programs called the Enterprise Investment Scheme (EIS) and Seed Enterprise Investment Scheme (SEIS) promote investment in small firms. If you invest in an EIS or SEIS-eligible company, you could avoid CGT on profits from selling your shares.

How it works: If you invest in a crypto business that is part of the EIS or SEIS and meet specific conditions, you could be exempt from CGT on profits made from the sale.

How to use it: These schemes greatly reduce CGT while supporting innovative crypto companies. Make sure to research which businesses qualify and consult a tax professional.

9. Timing Your Sale to Minimize CGT

The amount of CGT you pay can vary greatly depending on when you sell.

How it works: Since rates are based on your income tax band, you can pay less CGT if you sell your cryptocurrency assets in a year when your income is lower. You can save money by selling during a year with a lower income.

How to utilize it: Make a thorough plan for your sales. Try to time your cryptocurrency sales to fall during a year when you make less money. This will assist in lowering your CGT rate.

10. Know Which Assets Are Exempt from CGT

Not all assets are subject to CGT, and knowing which ones are exempt can save you money when selling cryptocurrency.

What’s exempt?
Personal items like cars, wedding gifts, and certain collectables (e.g., art or rare coins) are typically exempt from CGT. So, if you’ve sold a rare crypto collectable or NFT that qualifies as personal property, it may not be subject to CGT.

How to use it: Be aware of which crypto assets are exempt, such as some rare NFTs or collectables, to avoid paying CGT.

Let Crypto Accountants Help You Sort Out Your Crypto Taxes!

Capital gains tax (CGT) is a reality for cryptocurrency investors, but it does not need to reduce your earnings. With careful planning and an understanding of the available tax-saving strategies, you can keep more of what you earn.

If you need expert guidance on CGT or have specific questions about crypto tax challenges, Crypto Accountants is here to help! Contact us today and let our team assist you in maximizing your crypto tax savings while fully complying with UK tax laws.