I remember the first time someone told me about crypto currency and my mind was blown. At Hive, over the last few months, a week hasn’t gone by without a conversation about Bitcoin so I wanted to ask our resident Chartered Tax Accountant and personal investor in Bitcoin, Simon Vincent, what people need to know about investing in Crypto Currencies.

1. Simon, in a nutshell, can you explain what Bitcoin and Cryptocurrency is?

Bitcoin is a form of Cryptocurrency. In its most simple terms, this is a peer-to-peer network of transactions also known as a Blockchain or Distributed Ledger. Bitcoin is by far the most popular form of Crypto and was launched in 2009. Unlike fiat currency, Bitcoin has no physical presence and is not, and cannot be, administered by any one authority.

Many people turned to Bitcoin originally because it offered anonymity, but more recently it is being heralded as the future of money. It is seen also as a hedge against inflation with the phenomenal amount of quantitative easing issued by most central banks.

2. How can HMRC tax something that isn’t “real cash?”

Unfortunately there is no concept of “real cash”. The basic principle in tax here in the UK is that you are taxed on value, whether its cash or not. With Crypto, you’re generally only taxed when any gains are actually realised. This could be by converting it back to cash, making a purchase with it or even exchanging it for another form of crypto. This is no different to any other asset or store of wealth.

Think of gold. It has been used to store value for centuries yet it is no longer currency. However, if you own gold and sell it for a profit then you pay tax on that profit.

3. Why should people consider the tax implications of investing in Bitcoin?

There’s many people opining that Bitcoin in particular is due to see some phenomenal gains over the coming years. Where it can go in the future remains to be seen, but it is a fact that large profits lead to large tax bills! Indeed, anybody who purchased anything more than about 1 month ago is probably already sitting on some large gains.

What we are fairly certain of is rises in taxes starting with the Budget on 3 March. We’re particularly expecting large rises in Capital Gains Tax which will have a direct impact on Crypto held for investment purposes. With careful planning, this can be mitigated. Watch our video to find out more.

4. How can Hive help people who are thinking of investing or already own some Cryptocurrency?

From our experience, people investing in Crypto are doing so with little awareness that there are any tax implications but a number of things come into play. It’s a wider problem than paying tax on your profits. At Hive, we have developed a process to design an ownership strategy that suits your personal circumstances and goals; to help protect from immediate tax rises and even allow you to grow your asset base outside of your personal estate to save from IHT if Bitcoin price goes to the moon. This is applicable to everybody, not just dentists.

Thanks Simon, I am looking forward to seeing what happens with Bitcoin in the future. If anyone has any other questions or would like a free consultation with Simon to run through how he can help you make the most of your financial investments (whatever they may be) please get in touch.