Bitcoin Halving and its tax implications

Date: February 13, 2024

Bitcoin Halving is a widely anticipated event in the crypto community this year. With the coin already increasing in value by 60% this year alone. It also reached its all-time high in March 2024, bringing renewed public and media interest in crypto.

With increased values, come an increased tax burden from any gains made. In this article, we explain some of the key questions around Bitcoin Halving and answer related tax questions.

For further advice on how crypto is taxed please visit the crypto section of our website. Alternatively, you can contact us direct to discuss how we can assist you.

What is Bitcoin Halving?

Bitcoin halving, also referred to as “the halvening” is a highly talked about event in the history of Bitcoin. This event occurs approximately every four years after every 210,000 blocks.

Each time a block is appended to the Bitcoin blockchain, the individual who contributed to it is granted Bitcoins as a form of compensation. Known as the “block reward,” this originally started at 50 bitcoins. However, because of a specific aspect of Bitcoin’s code, this is reduced every four years by half (hence the name).

In the past, these events have resulted in the reward being reduced to 25 Bitcoins, then 12.5, and to the current allocation of 6.25. The upcoming event will further decrease the reward to 3.125.

How Bitcoin Halving works

In the last Bitcoin Halving event in 2020, the block rewards, representing the number of bitcoins entering circulation every 10 minutes were reduced to 6.25.

Blocks are added by miners. These generally fall into three categories: retail (individuals with computers), industrial (often publicly traded, operating data farms), and mining pools (groups of miners combining efforts over a network).

Anyone can become a miner and is eligible for rewards. To do so, they need to download the Bitcoin program and run it on their computers.

Rewards go to whoever is first to solve a complex math problem using trial-and-error calculations. Mining is an integral part of updating transactions on the Bitcoin blockchain and in keeping its network secure.

When is the Bitcoin Halving date 2024?

The next Bitcoin halving event is likely to occur in April 2024.

Which crypto has halved?

As mentioned above, the last Bitcoin Halving took place on 11 May 2020. Prior to this, Bitcoin also Halved on 28 November 2012, 9 July 2016 and 11 May 2020.

Aside from Bitcoin, other cryptocurrencies that have previously halved include Bitcoin Cash (BCH), Bitcoin SV (BSV), Dash (DASH), Litecoin (LTC) and Zcash (ZEC)

How Bitcoin Halving affects price

These halving’s attract significant attention due to the reported potential for increased wealth. While the number of new bitcoins entering circulation decreases, demand is expected to remain the same or potentially increase. Commentators state this has the potential to drive up value. Consequently, enthusiastic debates have emerged regarding Bitcoin price predictions and the market’s response to the halving.

Will Bitcoin Halving increase price?

The theory suggests that there will be a reduced supply of bitcoins for purchase if miners have fewer to sell. This scarcity could further contribute to potential price increases.

However, the periodic decline in Bitcoin’s mining rate holds more significance than just short-term price movements. Block rewards play a crucial role in ensuring the security of Bitcoin, which operates without a central authority. As rewards continue to decrease, this could have implications for the incentives that support Bitcoin’s security and stability through mining.

The other April crypto deadline – End of the tax year

Another deadline will also affect crypto holders in the UK, the end of tax year, which is on 5 April. With many having made gains in the past months, with it comes a tax liability.

Many people are unaware of how crypto is taxed. If you are unsure our article “ How is cryptocurrency taxed in the UK?” is a great starting point or useful for a refresh.

When investing personally, there is an annual tax free capital gains tax allowance of £6,000 per year. For married couples and those in a civil partnership, this is available per person. For transfers between spouses and civil partners, there is usually no tax associated with making transfers. This effectively can double the tax free allowance. Importantly this is reducing to £3,000 from 6 April 2024, so tax planning ahead of this is crucial.

With HMRC clamping down on crypto activity and implementing specialist disclosure process, it is vital that tax responsibilities are understood. Ignoring them may lead to a full HMRC tax investigation, with penalties and fines imposed. In more severe instances this can include criminal investigations.

Alexander & Co – expert crypto tax advice

For anyone requiring crypto tax advice, please contact us to discuss how we can assist. As one of the UK’s leading crypto tax advisors we can assist both individuals and businesses with all aspects of crypto tax and accounting.

Amongst our services, we can assist with reporting capital gains tax losses or gains, analysing and reporting income from staking and discussing how other crypto activities are treated for tax purposes.

Please compete the form on this page or email info@alexander.co.uk. We will be in touch to discuss how we can assist.