Taxing gains and losses.
Our client, is a UK-resident, higher-rate taxpayer, who has been actively trading in cryptocurrencies through multiple exchanges. In the 2024-25 tax year, they made significant gains from trading Bitcoin and Ethereum, but also incurred losses from other cryptocurrencies. They also received staking rewards from a DeFi platform and transferred some of their crypto holdings to a cold wallet. They are unsure how to report these transactions and whether any of the losses can be offset against their gains.
How should our client report their cryptocurrency transactions on their tax return for 2024-25? We are not sure if the staking rewards are considered income or capital gains? Can the losses from disposals be offset against the gains from bitcoin and ethereum? Does the transfer to a cold wallet constitute a taxable event?
Query 20,547 – Mayday.
How will HMRC view shares?
Our client is a UK trading company with good annual profits and valued at £3m. The company is owned 100% by a couple. One son (A) works for the company at management level. Another son (B) works in the public sector. The parents now want to gift one-third of the shares in the company to A, to assist with their imminent retirement planning and to secure the future of the company. They will retain the remaining two-thirds of the shares to provide them with income during their retirement. The alternative to this succession planning would be a trade sale or an members’ voluntary liquidation, neither of which they want. They will make alternative arrangements in their wills for B, so that both receive the same amounts from their estates.
We have submitted clearance to HMRC in respect of transactions in securities, but the bigger potential tax issue is whether these shares would be viewed by HMRC as employment-related securities acquired by reason of the employment, but the exclusion for family relationships does not apply. We cannot find any definitive guidance anywhere.
Commentary suggests that the exemption is unlikely to apply. HMRC guidance states the department will take a common sense view, but its example does not cover this situation either. Guidance in Tax Insider suggests that gifting of the shares would give greater certainty that the exception will apply. There does not seem to be any test case.
Can readers share their thoughts?
Query 20,548 – Family Man.
Gifts of income to daughters.
My client’s husband, 74, died in 2019. He was the sole beneficiary of a small self-administered pension scheme valued at £750,000 comprising cash at bank. My client, 68, has post-tax income in excess of her usual standard of living, confirmed by studiously completing page 8 of form IHT403 for several years.
As pension schemes will fall within the charge to IHT from 6 April 2027, my client (with a very substantial estate) proposes to draw down a pension of £200,000 now. This would be tax-free as she flexibly-accessed her dependants’ drawdown rights within two years of the date of death. She will then gift £100,000 to each of her two adult daughters. She then plans to draw annual pension income from which she will make further gifts of £100,000 to only one daughter in each of the following five years. The drawdowns will provide sufficient additional income to cover the £100,000 gift to each daughter now, and then £100,000 to one daughter only from year two and onwards.
Considering IHTA 1984, s 21, IHTM14242 and IHTM14243, our client having sufficient income to maintain her standard of living without the annual pension drawdowns, and our client documenting her intention of future gifts at the outset, do readers agree the ‘one-off’ gift to daughter A will be considered as part of regular gifts out of income if my client plans to gift all her excess income to only daughter B in future years? Secondly, as the pension income is tax-free in my client’s hands do readers agree this is a neat way of her receiving regular tax-free pension income then gifting it all away, on a regular basis, it also being exempt from IHT?
Query 20,549 – Gifted.
Should we ask Amazon for credit notes?
One of my clients has an interest in two limited companies, owning all of the share capital in the first company (A) and half of the shares in the other company (B). The other shareholder in B is not a family member of my client so there is an incentive to ensure all costs and revenue streams are entered into the correct entity. Both companies sell goods, mainly online through Amazon.
We are preparing the year-end accounts for both companies and it has come to light that Amazon UK has charged A for marketing and other support services instead of B. However, A has issued tax invoices to recharge the full amount charged by Amazon plus VAT to B so that the costs end up in the correct company. A has claimed input tax on the invoices from Amazon and accounted for output tax on the invoices issued to B ie, a nil effect overall.
I think there is no VAT problem here to interest HMRC because the correct company has claimed input tax (B), albeit by a different route than should have been. However, a colleague says that HMRC could disallow input tax claimed by A on the basis that Amazon has not supplied it with any services, and then B cannot claim input tax on the invoices issued by A because it has not received any services from A.
What do readers think?
Query 20,550 – Trader.
Queries and replies
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