Contents
Cryptocurrency has rapidly evolved into a global phenomenon, reshaping the future of finances. As more and more people adopt crypto for investment, trading, and everyday transactions, it is important to understand crypto tax in UK. HMRC considers crypto as chargeable assets, similar to shares. Capital gains tax covers any profits from disposing of crypto assets, whilst income tax applies to any activities like mining, staking or earning crypto as payment.
This article will explore how crypto tax in the UK is assessed and provide helpful tips for proper reporting. Let us simplify this complex topic so you can trade, invest, and plan with confidence.
What is Cryptocurrency?
Crypto is a virtual currency that uses cryptography for security and operates on blockchain technology like Bitcoin, Ethereum, and USDT. One of the main attractions of cryptocurrencies is their potential as an investment. Some see them as a digital version of gold, holding value over time. Others trade them to profit from price changes. However, the crypto market is highly volatile, with prices often changing drastically in a short time.
What is Crypto Tax in England?
HMRC does not view cryptocurrencies as legal tender but categorises them as assets. Hence, it is subject to taxation.
In the UK, crypto is liable for two types of taxes: capital gains tax and income tax. The type of tax applied depends on the nature of the activity. These taxes also extend to NFTs, DeFi activities, and derivatives trading.
For instance, capital gains tax (CGT) is levied on profits from selling or trading crypto assets, whilst income tax applies to earnings from activities like mining, staking, or receiving airdrops, etc.
When Do You Pay Tax on Crypto?
You pay tax on crypto when you “dispose” of it. This includes selling it for cash, swapping it for another cryptocurrency, spending it on goods or services, or gifting it (unless to your spouse or civil partner). HMRC considers these actions taxable events. These events are discussed in detail below.
If you profit from these transactions, you owe capital gains tax. On the other hand, rewards from mining, staking, or earning crypto through work are subject to income tax.
Taxable Events in Cryptocurrency
Taxable events are specific actions that trigger tax obligations in the eyes of HMRC. So, it is helpful to know about them if you are an investor or trader in crypto.
Selling Crypto for Cash
When you sell cryptocurrency for fiat currency (e.g., GBP), any profit made from the sale is subject to capital gains tax. The taxable gain is calculated as the difference between the disposal value and the acquisition cost.
Trading Cryptocurrencies
Exchanging one cryptocurrency or token for another also triggers a taxable event. HMRC treats such trades as disposals, meaning any gains must be reported and taxed under CGT.
Using Crypto for Purchases
Using cryptocurrency to buy goods or services is considered a disposal. The market value of the goods or services is used to calculate any taxable gain on the crypto used.
Receiving Crypto from Mining, Staking, Airdrops, or DeFi
Earnings from activities like mining, staking, or receiving airdrops are taxed as income, with the value assessed at the time of receipt. DeFi activities, such as yield farming, can also create taxable events based on income or gains.
Derivative Trading
Trading crypto derivatives, including options, futures, and contracts for difference (CFDs), is subject to CGT. Profits and losses from these transactions need to be carefully tracked and reported.
Capital Gains Tax (CGT) on Crypto Profits
In the UK, crypto assets are treated like property and capital gains tax applies when you sell or dispose of them. HMRC considers disposal of assets to include selling crypto for fiat currency, trading one cryptocurrency for another, or using crypto to purchase goods or services.
The acquisition cost includes the price paid for the crypto and any associated fees. When disposing of crypto, HMRC considers the market value at the time of disposal. If multiple acquisitions occur, the “share pooling” method is used to average the costs (except for NFTs).
New CGT Rates for Crypto (2024/2025)
As of the 2024/25 tax year, new crypto tax rate in UK on CGT gains is in effect following the 2024 Autumn Budget. The year was split into two periods, with increased rates applying to gains realised after 29 October 2024.
- For taxable earnings between £12,570 and £50,270, the new CGT crypto tax rate UK gov is 18%, whilst for earnings above £50,270, the rate has increased to 24%.
- You will have to calculate gains separately for each period and report them accordingly on your tax returns.
- You also have the option to allocate the annual CGT allowance (currently £3000 for 2024/25) and any carried-forward losses strategically across the two periods to minimise tax liability.
Example: If you bought Bitcoin for £5,000 and later sold it for £10,000, your profit is £5,000. If this exceeds your CGT allowance, the surplus is taxed accordingly.
Tax Free Allowances and Exemptions
The following crypto transactions are tax-exempt in the UK:
- Buying crypto with fiat currency like GBP.
- Holding (HODLing) your cryptocurrency.
- Gifting crypto to a spouse or civil partner.
- Donating crypto to a qualifying charity.
- Transferring crypto between your own wallets or accounts.
Nil-Rate Band and Annual Exemptions
The nil-rate band provides an annual tax-free allowance for CGT, which is £3,000 for the 2024/25 tax year. The annual trading allowance offers a tax-free threshold of £1,000 for trading and miscellaneous income. If your income from these activities exceeds £1,000, you can still deduct the allowance without needing to justify costs.
Read our guide to learn more about UK tax allowances and rates for 2024/2025
Deductible Expenses
When calculating your capital gains tax liability, you can generally deduct certain expenses related to your crypto activities.
Deductible expenses for crypto tax include:
- Mining Rigs and Equipment: The cost of mining hardware and maintenance can sometimes be claimed if mining is part of your taxable activities. However, these costs cannot be deducted if they have already been accounted for in other income tax calculations. Additionally, certain expenses, such as equipment or electricity costs related to mining, are not deductible under 2024/2025 tax guidelines.
- Transaction Fees: Fees incurred during crypto purchases, sales, or trades are also deductible.
- Associated costs of acquiring or disposing of crypto assets.
Learn 10 things you need to know to avoid capital gains tax on property in our guide
Pro Tip: You must document every transaction, including dates, amounts, and associated costs. For miners, keep receipts for equipment purchases, electricity bills, and other related expenses. Good record-keeping will not only reduce your tax liabilities but also help protect you from audits.
Income Tax on Cryptocurrency Activities
If you are employed and receive cryptocurrency as part of your salary, this income is subject to PAYE and National Insurance Contributions (NICs). The crypto tax rate for income tax falls under the same tax bands as traditional forms of salary. After the first £12,570, you will pay a 20% basic rate, increasing to 45% as your income rises.
Common taxable situations for income tax on crypto include:
- Mining: Rewards received for mining crypto are treated as income.
- Staking: Earnings from staking your crypto assets.
- Airdrops: Free tokens received as part of a promotion or network update, unless they are entirely unsolicited.
- Software and Subscription Costs: Costs associated with cryptocurrency-related software, such as portfolio tracking tools, tax software, and subscriptions to crypto data providers, can generally be deducted.
- Professional Fees: Fees paid to tax advisors, accountants, and other professionals for advice and assistance related to cryptocurrency taxes are deductible.
- Education and Training: Costs associated with cryptocurrency-related education and training, such as attending conferences, workshops, or online courses, can be deductible if they are directly related to your crypto activities.
- Home Office Expenses: If you use a portion of your home exclusively for cryptocurrency-related activities, you may be able to deduct a portion of your home expenses, such as rent, utilities, and internet.
How to Report Crypto Taxes in the UK
Self-employed individuals or investors have to report cryptocurrency income through a Self Assessment tax return. On the other hand, crypto income earned through employment depends on the employer’s location and the nature of the tokens received.
To report your crypto taxes in the UK, register for Self-Assessment via the Government Gateway. Collect detailed transaction records, calculate your capital gains, and submit the required forms (SA100 and SA108).
Deadline for Reporting Crypto Taxes (2025): Submit your Self Assessment Tax Return online to the HMRC by midnight on the 31st of January 2025.
Tip: By carefully tracking and documenting your expenses, you can reduce your crypto tax liability and maximise your after-tax returns.
Common Mistakes to Avoid
When it comes to crypto tax in UK, some mistakes can cost you more than just time. Even minor discrepancies can trigger audits and result in hefty penalties.
Misunderstanding Taxable Events
Many investors do not recognise taxable events such as exchanging one cryptocurrency for another, using crypto to purchase goods or services, or receiving tokens through mining, staking, or airdrops. These actions are taxable and must be reported to HMRC.
Neglecting to Report Gains or Losses
Many investors think cryptocurrency transactions are invisible to HMRC because of their pseudo-anonymous nature. In fact, HMRC has data-sharing agreements with major crypto exchanges. These allow tax authorities to access Know Your Customer (KYC) information and make it easier for HMRC to track taxable activities. Overlooking the need to report all crypto transactions, including losses, is a frequent mistake. Reporting losses can help offset future gains and reduce your overall tax liability.
Inaccurate Record-Keeping
Not maintaining detailed and accurate records of crypto transactions can result in miscalculations, higher tax bills, or penalties. You will have to document transaction dates, acquisition costs, disposal values, and any associated fees to simplify reporting and avoid compliance issues.
Other FAQs About Crypto Tax
Soft forks are usually not taxable since they do not create new assets. However, hard forks are partially taxable if new assets are created. But airdrops are a taxable income and you will need to pay CGT on them when you sell the airdropped currency.
Crypto staking is locking up your tokens to earn rewards. Crypto staking is taxed at an income level as HMRC considers it as miscellaneous income.
Whilst there is no specific “gift tax” on cryptocurrency in the UK, gifting crypto is considered a disposal of assets and may trigger Capital Gains Tax (CGT). You will not owe CGT if the gift is to your spouse, civil partner, or in certain cases, a charity. For other recipients, the tax owed depends on your gain and annual CGT allowance. Always check the rules or consult one of our tax accountants to ensure compliance.
HMRC can track your crypto transactions. Not reporting can lead to an audit and potentially, heft fines and penalties.
Making Crypto Tax Simple
The rules for crypto tax in UK can feel like a maze, with changing regulations and intricate details to consider. Legend Financial can make the process smooth and stress-free for you. We provide accurate tax return services to investors and businesses handling crypto transactions. Our team of experts will handle all the paperwork whilst making sure you always stay compliant. Contact us now for smooth processing of your crypto tax.
