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Crypto currency – tax relief on losses

Recently published revenue guidance has confirmed that losses incurred on selling crypto currency holdings are eligible for capital gains tax relief

QUESTION: I invested in crypto currency during 2018 and I sold my holding at a considerable loss. Am I able to obtain any tax relief on this loss?

ANSWER: Recently published revenue guidance has confirmed that losses incurred on selling crypto currency holdings are eligible for capital gains tax relief. Initially when the crypto currency bubble started, some people were of the misunderstanding that they were in fact engaged in gambling and any profits were exempt from tax.

This is not the case as many investors made significant profits on crypto currency when its values soared in value from approximately $1,000 to a peak of $19,000. Today values have fallen back and today the most popular crypto currency, Bitcoin, is worth less than $4,000.

Any profits made on crypto currency dealings over and above £11,700 are liable to capital gains tax typically at 20 per cent for higher rate taxpayers. You should compute your crypto currency loss and you should then claim the loss on your 2018 – 19 income tax return which you will be able to prepare after April 5.

If you have or are likely to make capital gains on other assets (for example a rental property) it is important that you realise the crypto currency loss in either a year before the gain or in the same year as capital gains tax losses cannot be carried back and can only be offset against capital gains in the same year or subsequent years. A common problem with people who invested in crypto currencies is that they made significant capital gains in early years re-invested and now have had to liquidate their holdings realising capital losses, which unfortunately cannot be carried back.

Some investors did not invest directly in crypto currency and rather invested in investment schemes called 'initial coin offerings', or ICO's. Unfortunately many of these were fraudulently set up tricking investors into investing in them during the crypto currency boom.

If you were a victim of one of these arrangements it may be possible to claim capital gains tax relief by considering the submission of a negligible value claim whereby you will be treated as if you have sold an asset that is now completely worthless and you claim a capital loss.

Finally, if you wish to invest in tax efficient investments prior to April 5 you could consider investment in an Enterprise Investment Scheme (EIS), a Venture Capital Trust (VCT) or a pension scheme which are the most popular investments that provide immediate tax relief.

EIS and VCTs confer income tax relief at 30 per cent and it is possible to claim capital gains tax deferral relief as well which could be worth a further 28 per cent if the gains emanate from investment property.

Furthermore after a qualifying two-year period, EIS and VCT investments fall out of the change to Inheritance Tax (40 per cent relief). So taken together that's a potential 98 per cent tax relief!

As always, such tax relief normally come with increased risk so you should discuss these with your independent financial advisor before any investment.

:: Paddy Harty (p.harty@pkffpm.com) is director at PKF-FPM Accountants (www.pkffpm.com). The advice in this column is specific to the facts surrounding the question posed. Neither The Irish News nor the contributors accept any liability for any direct or indirect loss arising from any reliance placed on replies.

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