Cryptocurrency Portfolio Review

Crypto Tax | Digital Assets

A high-net-worth individual approached us with a complex cryptocurrency portfolio that had been accumulated over several years.

The portfolio included holdings across multiple exchanges, participation in various DeFi protocols, staking arrangements, airdrops, and a significant number of token swaps. No comprehensive tax analysis had ever been undertaken.

The client was concerned about their compliance position. They had made some disposals and had not reported any gains. They were unsure how to treat various DeFi transactions. And they had received significant value through airdrops and staking rewards that had never been considered from a tax perspective.

We began by obtaining complete transaction histories from all relevant sources. This included exports from centralised exchanges such as Binance and Coinbase, on-chain transaction data from Ethereum and other blockchains, and records from various DeFi protocols. The raw data ran to thousands of transactions.

We then worked through the transactions systematically, categorising each one and applying the relevant UK tax treatment:

For straightforward purchases and sales of cryptocurrency, we identified each disposal and calculated the gain or loss using an appropriate pooling methodology.

For token swaps (exchanging one cryptocurrency for another), we analysed whether each swap constituted a disposal for capital gains tax purposes and calculated the gains accordingly.

For staking rewards, we considered the nature of each staking arrangement and advised on whether the rewards were income (taxable when received) or capital (taxable on disposal).

For airdrops, we analysed the circumstances in which each airdrop was received and advised on the appropriate tax treatment - some airdrops are taxable as income, others may be capital, and some may have negligible value.

For DeFi transactions including liquidity provision, yield farming, and lending, we worked through the mechanics of each protocol and applied the appropriate tax law.

We prepared a comprehensive report setting out our analysis and conclusions.

The report included a summary of the client's overall position, a detailed transaction-by-transaction analysis, calculations of gains and income for each relevant tax year, and recommendations for ongoing compliance.

The report also identified several planning opportunities, including the use of the annual exempt amount, the potential to realise losses to offset gains, and the importance of maintaining proper records going forward.

Outcome

Comprehensive crypto tax analysis completed covering five tax years and thousands of transactions.

The client now has a clear understanding of their position and a framework for ongoing compliance.

This case study is based on a real client matter. All identifying details have been removed or changed to protect client confidentiality.