[tim333]

I'm not totally sure about the US case but in the UK you are technically liable for capital gains tax on foreign currency appreciation so if I buy US$ at 1.60 to the £ and buy a cup of coffee when for $2 when it's 1.40 to the £ I should declare the 20c or so appreciation in my dollars in pound terms. In practice no one bothers for small sums and if you've made a gain of say £10k you can estimate an average rate rather than itemising each coffee. In theory the tax inspectors could come back and ask you to itemise but in practice they have better things to do with their time. I imagine the US and bitcoins would be similar.

[tomatocracy]

True, except it's not only that people don't bother to report holiday cash transactions - there are formal exemptions from capital gains tax in the UK for (i) cash which is for personal use while travelling outside the UK and (ii) (since 2012) for all foreign currency bank accounts. In terms of what most people do, it's only if you hold or use the currency for investment purposes that you need to worry.

HMRC initially tried to treat Bitcoin in the same way as gift vouchers, not currencies, which meant that different rules applied (particularly in relation to VAT). However they now apparently treat is as a currency which in theory means the above exemptions are open to people to claim.

There are issues with this though. Firstly, in the legislation "bank account" is not explicitly defined so it's unclear exactly which forms of wallet might qualify for that exemption, if any. Secondly, the exemption for physical currency doesn't include personal use of a foreign currency within the UK.

So it's still pretty unclear whether you'll be subject to CGT or not.

[tim333]

Most stuff that makes money gets taxed. The HMRC exempt investment in cars and gambling because they figure most people lose on those. Guess that goes for holiday money too as the money change fees probably exceed currency gains. Dunno if you could classify bitcoin as gambling on the value of some inherently worthless bits? Might have a chance with that one.