Cryptoasset Tax Loss Harvesting

The end of the 2023/24 tax year is approaching and below are some thoughts about being proactive in managing your crypto tax liability. Transactions will need to be executed by 5 April 2024 to fall into the 23/24 tax year.

It is recommended you bring your crypto tax book-keeping up to date (using our recommended partner Recap.io) and seek bespoke tax advice for your circumstances before implementing these tips.

Please see our separate article Crypto Tax Year End Planning Tips, covering more tips and pitfalls.

What is crypto tax loss harvesting?

If the current value of your crypto or NFTs is less than their matched acquisition cost, you could choose to intentionally dispose of these assets to crystallise a capital loss to offset against other capital gains in the same tax year. If the capital losses ‘banked’ are not used in the same tax year, they will be carried forwards indefinitely to offset future capital gains.

Do I have to sell my crypto/NFTs to bank a capital loss?

Not necessarily. A disposal for capital gains tax (CGT) purposes could be one of the following:

• Cash out for fiat
• Crypto to crypto trade
• Buy something with the crypto
• Gift the crypto
• DeFi type activity, where beneficial ownership is lost
• Negligible value claim
• Sell to your own Limited Company
• Claim a loss on stolen/lost crypto

When should I consider selling crypto to my Limited Company?

Whether the company pays you full market value for the crypto or you gift it free of charge, you are personally treated as disposing of the crypto for CGT purposes at market value.

If you have some crypto standing at a tax loss, then this can be transferred into the company free of personal CGT. The capital loss cannot be offset against your other gains, but it can be used against gains arising on other crypto transferred to the company at a gain. It is highly recommended to seek professional advice as this can be complex to ensure you navigate the matching rules to achieve the intended result.

By selling the crypto to your company, you build up a credit balance ‘owed to you’ that can be taken from the company at any time free of personal tax.

If your income yield from crypto is high and your other taxable income is significant, it may be worthwhile transferring this income generating crypto into a company. There are pros and cons but it is worthwhile considering from a tax point of view, if you are viewing your crypto as a medium to long term investment and don’t plan to withdraw profits from the company each year – instead you are happy for them to roll up and be reinvested by the company.

Negligible value and other capital loss claims

Negligible value claims can be made to bank a capital loss where you still hold crypto or NFTs that have become worthless. You need to demonstrate the token had value at the time of acquisition and subsequently became worthless. The tokens need to be worthless at the date of the deemed disposal and at the later date when you make the claim on a tax return, or by letter.  We recommend reviewing your portfolio for crypto/NFTs with a view to making a loss claim. Time is of the essence as the time limit to claim capital losses for the 19/20 tax year expires on 5 April 2024.

Where you have lost tokens/NFTs in other ways (ie stolen, rug pull), the rules on claiming a capital loss are quite strict. There has to be no prospect of recovery and any claim made may be challenged by HMRC.