If the bitcoins have been purchased HMRC will regard any increase in value as being liable to capital gains tax. Tax will only crystallise when the bitcoins are converted into another currency, be it sterling or dollars or even another cryptocurrency. Capital gains tax is currently charges at ten per cent or 20 per cent (or a mixture ) depending on the level of the taxpayer’s other income.

Therefore in the situation above, the bitcoin seller is liable to capital gains tax on the gain arising. As the current price of a bitcoin is approximately £4,500 that would lead to a capital gain of £4,495,000 (£4,500,000 less £5,000) which after a capital gains tax exemption of £11,300 leaves a tax liability for a higher or additional rate taxpayer of £896,740.