UK hodl more profitable than trade

Hello,

I am new to crypto & thinking about tax. As I understand it, in the UK, every time you trade a crypto for another crypto, it is a taxable event. Does this effectively mean that holding a coin long term is more profitable than day trading? Because you will only be taxed once when you ultimately cash out, as opposed to paying capital gains every day if you are day trading?

I appreciate any replies that help me understand this, thanks!

Every trade, for between crypto or crypto back to fiat attracts a chargeable event. You also have slightly different rules if yous sell then rebuy crypto on the same day OR within 30 days, than if you sell and rebuy after 31 days - ‘bed and breakfasting’.

It depends on the goal and your CGT allowance as to what is best. But yes, you do get CGT events each time you sell a crypto for cash/crypto.

Thanks, trying to learn about this as we speak. Also, do you know how they judge whether you have to pay capital gains or income tax? I’m considering using a bot which would make trades everyday. Because of the frequency of the trades, despite me not considering myself a professional, would HRMC deem me a professional and therefore deem it income tax?

If your trading is classed as CGT i see it like this:

If you buy coins for a value of 10K. You then sell at 12K and have to pay CGT on the 2K profit.

If you buy coins at a value of 10K. You then sell them at 8K and have made a 2K loss, which can be used to off set your CGT.

So i don’t see a negative regarding tax and trading with the above in mind, as the gains and losses balance each other out.

If you buy coins at a value of 10K and hodl them to 20K, you pay CGT on the 10K profit.

If you buy coins at a value of 10K and sell them at 12K, then wait for a dip to 10K and repeat this process 5 times, you pay CGT of 10K.

Basically what i’m saying is i don’t think it’s better or worse to trade or hodl from a CGT point of view.

That said i’m not sure at what point trading is classed as income tax. If your trading is classed as income tax it’s possible you will NOT be allowed to off set your losses against your gains. If this were the case it would certainly make hodling better than trading from a tax point of view.

That said people who have a certain x amount of trading skill could still do better than hodling i suppose.

I’d be wary of anyone who appears to be good at trading though. Just because someone has done well doesn’t mean they know what they’re doing. Don’t forget people win big at the casino all the time. It doesn’t mean they’re +ev against the casino. It’s just that a small percentage of casino customers will get lucky. This is simply positive variance. The same happens in the trading world. If enough people throw mud at a wall some will stick.

My advice would be don’t use a trading bot. I’m sceptical of trading bots, because if the bot is that good why would the creator sell it. Surely it’s better for the creator to be the only person using this bot. If it’s really that good they would be immensely wealthy. Hard to imagine they would then share it with random people on the internet.

I’d advise using a DCA strategy, as it makes life much simpler by taking the guess work and stress out of investing. Also look at hodling with a long term view of 3-5 years. If you will panic sell on 30-80% dips then hodling is not for you.

Oh and keep in mind i’m just a random internet person and very possibly don’t have a clue what i’m talking about. ;o)

not sure why treating your activity as income rather than CG woudl not allow you to offsdet profits with losses but if the activity is treated as “trading” you will be paying income tax rather than capital gains tax which is obviously a lot higher if you go over 50k threshold.

Now, to be classified to be in the busines sof trading takes some effort…i will find out later this year how they will treat my case as i have over 10,000 disposals. HMRC guidance says that in VAST majority of cases gains will be treated as capital gains but - direct quote “Only in exceptional circumstances would HMRC expect individuals to buy and sell cryptoassets with such frequency, level of organisation and sophistication that the activity amounts to a financial trade in itself.” So the frequency itself is not enough, but i wonder what test they can use to establish level of sophistication and organisation…trading 50 coins? 100? being subscribed to 100 telegram chats? not sure. will find out later :slight_smile: