Michelle Legge
By Michelle Legge ‚ÄĘ Head of Crypto Tax Education
Updated May 23, 2024
This article has been fact checked and reviewed as per our editorial policy.

Crypto Tax UK: Expert Guide 2024

Do you owe tax on cryptocurrency in the UK? Find out in our comprehensive UK Crypto Tax guide! Discover the ins and outs of UK crypto taxation, including DeFi, mining, and staking. Plus get expert tips on reducing your UK crypto tax bill. We've got everything you need to know about tax on cryptocurrency in the UK.

Do you have to pay tax on crypto in the UK?

Yes - for most crypto investors. UK financial institutions don't recognise crypto assets as money or currency. Tax-wise, crypto is treated similarly to shares and is taxed in the same way. That means that all cryptocurrency is taxable in the UK.

HMRC is clear that crypto may be subject to both Capital Gains Tax and Income Tax depending on the specific transaction.

How much tax do you pay on crypto in the UK?

For capital gains from crypto over the £6,000 tax free allowance, you'll pay 10% or 20% tax. For additional income from crypto over the personal allowance, you'll pay between 20% to 45% in tax. The exact amount you'll pay will depend on the transaction you've made, the tax that applies, and the Income Tax band you fall into.

For the 2023-2024 financial year, the tax free allowance for capital gains has been cut to £6,000 from £12,300. This halves again in April 2024 to £3,000.

Watch our ultimate UK crypto tax guide

This guide is regularly updated

Can HMRC track crypto?

Yes - HMRC can track cryptocurrency. By tapping into information from exchanges like crypto.com, HRMC are able to keep tabs on crypto transactions and target investors who are not meeting their tax obligations.

  • HMRC has a¬†data-sharing program¬†with all UK¬†exchanges.

  • HMRC has crypto transaction data from as¬†far back as 2014.

  • HMRC has the¬†KYC¬†information you provided when signing up for any UK exchange or wallet.

HMRC has just issued a press release urging crypto holders to disclose unpaid taxes on crypto voluntarily. The tax office has released a new service that investors can use to declare any unpaid tax on crypto assets, stating that investors who fail to contact HMRC may be liable for additional interest and penalties.

This shows an increasing focus on crypto taxes from HMRC and that HMRC is ramping up its efforts to discover unreported gains as the UK gears up to begin exchanging information with European counterparts on crypto transactions as part of CARF regulations.

If you’re wondering how far back HMRC will go in an effort to discover unreported gains - it all depends on whether you’ve taken reasonable care in your taxes or deliberately misled HMRC:

  • If you‚Äôve taken reasonable care in reporting your crypto taxes but did not pay enough, you‚Äôll need to disclose and pay any taxes due for the previous four years.

  • If you did not take enough care in disclosing your crypto gains, you must pay HMRC what you owe for a maximum of six years.

  • If you've deliberately misled HMRC about crypto gains or income and deliberately not paid enough tax, you‚Äôll have to declare and pay any tax due for a maximum of 20 years.

How is crypto taxed in the UK?

There is no specific Bitcoin tax or cryptocurrency tax in the UK. Instead, your crypto will either be subject to Capital Gains Tax or Income Tax.

The crypto tax you'll pay depends on the specific transactions you're making with your crypto. If you're seen to be making an income, you'll pay Income Tax. If you're seen to be making a capital gain, you'll pay Capital Gains Tax.

We'll look at both.

How's crypto taxed in the UK

Crypto Capital Gains Tax UK

Because HMRC sees crypto as a capital asset, when you dispose of a capital asset - you'll pay Capital Gains Tax. Disposals of crypto include:

  • Selling crypto for GBP or another fiat currency.

  • Trading crypto for crypto, including stablecoins.

  • Spending crypto on goods and services.

  • Gifting crypto - unless it's to your spouse or civil partner.

So anytime you sell, trade, spend, or gift crypto in the UK - you'll pay Capital Gains Tax as a result.

Don't worry - you won't pay tax on the entire proceeds when you make a disposal. You'll only pay tax on crypto gains, so whenever you've made a profit.

In addition to this, HMRC has finally released some guidance on DeFi transactions - in particular lending and staking - but it hasn't really clarified too much. The guidance now states that DeFi transactions may be subject to Income Tax or Capital Gains Tax depending on the "nature of the transaction" and whether that transaction has the nature of capital or the nature of income. In essence, a capital transaction happens when you dispose of your crypto, regardless of whether you have the right to claim that crypto back or not, this could include:

  • Adding/removing your crypto in a liquidity pool - if the DeFi protocol can benefit from your liquidity.

  • Staking your crypto through a DeFi protocol - though the return from staking may be chargeable under Income Tax.

CGT UK

Capital Gains UK Tax Free Allowance

HMRC cut the Capital Gains Tax Allowance from £12,300 a year to £6,000 a year for the 2023 - 2024 financial year. This halves again for the 2024 - 2025 financial year to £3,000.

Let's look at how much Capital Gains Tax you'll pay on your crypto.

Crypto Capital Gains Tax rates UK

Unlike many other countries, the UK doesn't have a short-term and long-term Capital Gains Tax rate. All capital gains are taxed under the same rates. The amount of Capital Gains Tax you'll pay depends on how much you earn. You'll pay either 10% or 20% tax on any crypto gains, depending on what band you fall under.

  • If you earned less than ¬£50,270 (total income) - you'll pay 10% on crypto gains.¬†

  • If you earned more than ¬£50,279 (total income) - you'll pay 20% on crypto gains.

Source

Tax RateTaxable Income
10%Basic Rate Income Band (up to £50,270)
20%Higher Rate Income Band (up to £150,000)
20%Additional Rate Income Band (more than £150,000)

Crypto capital losses

Not all investments yield gains; some lead to capital losses, which aren't subject to Capital Gains Tax. In the UK, you can offset unlimited capital losses against gains, reducing them to the £6,000 tax-free allowance (for 2023/24), thus avoiding Capital Gains Tax. Carry forward these losses indefinitely by registering them on your self-assessment tax return.

Even if your gains are below the threshold and you don't usually file a return, it's wise to register losses to carry them forward. While HMRC allows four years to register losses, doing it in the year incurred is recommended. Alternatively, if you're not filing a self-assessment, you can notify HMRC in writing to register your losses.

How to carry crypto losses forward

To carry forward capital losses with HMRC, you need to report them on your self-assessment tax return. This applies even if your gains are low and you usually don't file a return. It's best to register losses in the year they occur, but HMRC gives you up to four years. If you don't file a return and want to avoid extra fees, you can simply write to HMRC to register your losses.

After a four-year period, you'll no longer be able to register your losses and utilise them to offset future gains.

crypto capital losses UK

EXAMPLE

Oliver made a £20,000 gain selling Bitcoin this year, but last year he made a loss of £10,000, which he registered with HMRC. He has not used any of his Capital Gains Tax free allowance this year.

So Oliver can use his £10,000 loss from the previous year to offset his £20,000 gain, bringing it down to £10,000. He can then utilize his Capital Gains Tax free allowance of £6,000 (for 23-24 FY), leaving him with a taxable gain of £4,000.

How to calculate crypto gains and losses

To calculate tax on crypto gains, you need to start by figuring out your cost basis.

Your cost basis is how much it cost you to buy your crypto, plus any transaction fees. If you acquired your crypto by other means - like an airdrop or fork - you'll take the fair market value of the crypto on the day you received in GBP it as your cost basis instead.

An infographic with a calculator and sum explaining how to calculate crypto cost basis, presented by Koinly, a crypto tax calculatorOnce you know your cost basis, it's easy to figure out your capital gain or loss. A capital gain or loss is the difference in value from when you acquired the asset to when you disposed of it by selling it, swapping it, spending it, or gifting it. So subtract your cost basis from the price you sold the asset for. If you spent, swapped, or gifted your asset, subtract your cost basis from the fair market value of the asset on the day you disposed of it.

An infographic highlighting information on how to calculate a crypto gain, presented by Koinly, a crypto tax softwareIf you have a profit then you have a capital gain and you'll pay Capital Gains Tax on that gain. If you have a loss, you have a capital loss and you won't pay Capital Gains Tax on your loss - but you do want to keep track of these as they can reduce your tax bill. We'll explain this in a minute - but first, let's look at an example of calculating tax on a crypto capital gain.

Example

Oscar bought 1 BTC in May 2020. The price of BTC on the day he bought it was £7,000 and he paid an extra £100 in transaction fees. This is his cost basis.

In May 2021, Oscar sells his BTC. The price of BTC on the day he sells is £38,000. He needs to subtract his cost basis from his sale price to figure out his capital gain.

£7,000 + £100 = £7,100. This is the cost basis of the BTC.

£38,000 - £7,100 = £30,900. This is his capital gain and he'll pay Capital Gains Tax on this amount. To figure out how much tax he'll pay, he needs to look at his regular income to figure out which Capital Gains Tax band he falls into.

Oscar earned £70,000 in income in the 2021 financial year. This puts him in the 20% Capital Gains Tax band. He'll pay 20% tax on his crypto gains of £30,900, less his CGT tax free allowance (£12,3000 in 2021-2022 FY).

£30,900 - £12,300 = £18,600

£18,600 x 20% = £3,720. This is how much tax is liable for.

UK cost basis method

Investors often trade multiple assets, not just one, involving potentially hundreds of transactions yearly. A cost basis method is essential here, guiding the calculation of gains and losses for identical assets. In the UK, HMRC specifies 'share pooling' as the crypto cost basis method, preventing manipulation of gains and losses through rapid buy-sell actions to distort the actual financial picture.

cost basis methods sharepooling uk3 cost basis methods:

  1. Same-Day Rule: If you buy and sell coins on the same day, you need to use the cost basis on this day to calculate your gains/losses. If you’re selling more than you bought on that day, move on to the next rule.

  2. Bed and Breakfasting Rule: If you sell and then repurchase the same coins/tokens within 30 days, you’ll use the cost basis of coins/tokens you bought within this month to calculate your gains/losses. If you’re selling more than you bought within this month, move on to the final rule.

  3. Section 104 Rule: If the above two rules don’t apply to any of your crypto transactions, you need to use this cost basis method when calculating your crypto taxes. This works like the ACB method in that you calculate an average cost basis for a pool of assets by adding up the total amount paid for all assets and dividing it by the total amount of coins/tokens held.

Check out our article on calculating tax with share pooling for examples of how this works. These rules exist to prevent crypto investors from tax loss harvesting.

Income Tax on crypto UK

Now we've covered everything you need to know about crypto capital gains, let's look at crypto income and Income Tax.

There are cases where crypto is treated as income and thus attracts Income Tax. Cryptocurrency transactions that are classified as income are taxed at your regular Income Tax band. In some instances, you'll need to make National Insurance contributions on income from crypto as well.

Income tax UKIn the UK, crypto is taxed as Income when it comes from:

Income from DeFi

HMRC has finally released guidance on DeFi transactions - in particular lending and staking. The guidance now states that DeFi transactions may be subject to Income Tax or Capital Gains Tax depending on the "nature of the transaction" and whether that transaction has the nature of capital or the nature of income. If your DeFi activities have the 'nature of income', they'll be subject to Income Tax.

In general, Income Tax will only apply to 'returns' from activities, so rewards from staking, yield farming, lending, and more could be considered income and subject to Income Tax. HMRC says it's likely to be considered income if:

  • The return to be received has been agreed upon - as opposed to speculative and unknown.

  • If the return is paid by the borrower/DeFi platform.

  • If the return is paid periodically throughout the period of lending/staking.

So if you're earning new coins or tokens, potentially at an agreed APY through a DeFi protocol - it's likely this would be seen as income. Therefore this could include:

  • Earning new crypto tokens through¬†yield farming¬†on lending protocols like AAVE or Compound.

  • Earning new¬†liquidity pool¬†tokens, governance, or reward tokens.

Engage to earn income

HMRC hasn't yet released guidance on engage-to-earn or play-to-earn platforms which appeared primarily in the DeFi space recently. However, as earning crypto through staking and mining is considered income, we can infer that earning tokens and coins through these platforms would also likely be considered income by HMRC. Examples of potential crypto income include:

  • Referral rewards¬†like Binance Referral.

  • Learn to earn¬†campaigns, like Coinbase Learning Center or CoinMarketCap Learning Center.

  • Watch to earn¬†platforms like Odysee.

  • Browse to earn¬†platforms like Brave.

  • Play to earn¬†games like Axie Infinity.

  • Shop to earn¬†through browser extensions like Lolli.

In summary - any time you're earning new tokens as a result of an investment activity, this is likely to be seen as Income and subject to Income Tax. You can learn more in our UK DeFi Tax guide.

How much tax will you pay on crypto income?

To figure out how much tax you'll pay on crypto income, you need to first know the crypto Income Tax rates. These are the same Income Tax Bands for your regular income. The UK uses a progressive income tax banding - so you won't pay the same flat rate of income on all your earnings, instead, you'll pay a higher rate of tax only on earnings in higher tax bands. Taxpayers earning more than £125,000 a year do not receive the £12,570 personal allowance and those earning more than £100,000 a year receive a reduced personal allowance.

Source

Tax RateTaxable IncomeBand
0%Up to £12,570Personal Allowance
20%£12,571 - £50,270Basic Rate
40%£50,271 - £150,000Higher Rate
45%£150,000+Additional Rate

The Autumn Statement reduces the additional rate Income Tax threshold from £150,000 to £125,140 from April 2023.

Scottish taxpayers have slightly different Income Tax Bands. See here or read our crypto tax rate UK guide.

How to calculate crypto income

Calculating crypto income involves determining the fair market value in GBP of the coins or tokens on the day you received them. This is straightforward for small, occasional earnings, but much more time-intensive for regular small incomes from activities like mining or staking. Reviewing an entire year's worth of transactions to find each one's fair market value is a lengthy task, but thankfully, Koinly automates this process for you.

Example

Aida earns £4,000 in additional income from a variety of crypto investments. She needs to figure out how much Income Tax she'll pay on this.

She earns £40,000 in income in the 2021 financial year. Remember £12,570 of this is tax free.

This puts her in the basic rate tax allowance of 20%. Aida will pay 20% tax on her crypto income of £4,000, so a total of £800.

Is any crypto tax free?

Some! You won't always pay tax on crypto in the UK. Transactions that are tax free include:

  • Buying crypto with GBP.

  • HODLing crypto.

  • Transferring crypto between your own wallets.

  • Donating crypto to charity.

  • Gifting crypto to your spouse. (Use this to your advantage if your partner has not used their capital gains allowance this year!)

tax free crypto UK

Lost or stolen crypto

HMRC has clear guidance on lost and stolen crypto - and it's not all good news. HMRC does not consider theft or loss as a capital loss. But you may be able to make a negligible value claim in some specific circumstances and later claim a capital loss. Find out more in our HMRC lost crypto tax guide.

stolen or lost crypto UK

Crypto tax breaks

UK crypto investors can pay less tax on crypto by making the most of tax breaks.

UK crypto tax breaks1. £12,570 Personal Income Tax Allowance: Your first £12,570 of income in the UK is tax free for the 2022/2023 tax year. This matters for your crypto because you subtract this amount when calculating what Income Tax band you're in. Please note, that you do not get a Personal Income Tax Allowance if you earn more than £125,140 a year.

2. Trading and Property Allowance: £1,000 of income from trading or property is tax free thanks to the Trading and Property Allowance. If you've got income from both, you can get £2,000 tax free.

3. Capital Gains Tax Free Allowance: We know we've harped on about this already - but it's a big deal. The UK had a Capital Gains Tax Free Allowance of £12,300 up until April 2023. From April 2023, this allowance halved to £6,000, and from April 2024, this allowance halves again to £3,000.

When do you need to report your crypto taxes to HMRC?

The UK financial year runs from the 6th of April to the 5th of April the next year.

So the financial year you'll be reporting on in 2025 is from the 6th of April 2023 to the 5th of April 2024. You need to report your taxes for this financial year by the 31st of January 2025. You'll declare all your crypto taxes in your Self Assessment Tax Return.

How to report crypto taxes to HMRC

You file your crypto taxes as part of your Self Assessment Tax Return. You can see our complete guide on reporting crypto to HMRC, but in summary:

Report crypto capital gains and losses on: SA100 and Capital Gains Summary SA108.

Report crypto income on: Box 17 of your Self Assessment Tax Return (SA100).

You can do all of this online through the Government Gateway service or you can file your self-assessment tax return with paper forms by post. Please note the deadline for postal Self Assessment Tax Returns is the 31st of October 2024.

In the Spring Budget 2023, the Chancellor announced that the government would introduce changes to the Self Assessment tax return forms and that investors would need to report crypto assets separately. Don't panic though, these new reporting requirements aren't being introduced until 2024-2025.

Do you pay tax when you buy crypto in the UK?

Yes and no - it depends on what you're buying crypto with. Let's break it down.

Buying crypto with GBP

TAX FREE

You're not taxed when you buy crypto with fiat currency - like GBP - in the UK.

But, it's really important you keep records of your crypto transactions so you can keep a detailed account of your cost basis. This makes sure you can accurately calculate your crypto gains and losses later on.

An infographic detailing how buying crypto is tax free, presented by Koinly, a crypto tax calculator

Buying and HODLing crypto

TAX FREE

Waiting for the moon? Great plan and great news for your taxes. You'll pay no tax on crypto you HODL.

Again, do make sure to keep records of how much it cost you to acquire your crypto so you can accurately calculate your capital gains and losses later on.

For those long-term HODLers, it may be worth using a platform that tracks and stores trading information for long periods of time, as exchanges often only keep information for a matter of months. This information can then easily be imported into Koinly to quickly find out how big your tax liability is.

Buying crypto with crypto

CAPITAL GAINS TAX

Crypto trading in the UK is taxed. So if you're trading Bitcoin for Ether or any other cryptocurrency - you'll pay Capital Gains Tax. HMRC views this as two separate transactions. Trading your asset is a disposal - just like selling or spending it. They're not interested that you're using it to buy another asset, just that you're disposing of one. So it is the asset you dispose of that you'll pay Capital Gains Tax on if you've made a gain.

To calculate your capital gain, you'd use the cost base of the crypto you disposed of and subtract it from the fair market value for that asset on the day you traded it for another crypto.

crypto to crypto is taxable UK

Buying crypto with stablecoins

CAPITAL GAINS TAX

Stablecoins are cryptocurrencies that are pegged to a reserve currency, often a fiat currency. For example, the cryptocurrency USDT is tethered to the US dollar. This allows for reduced price volatility

Buying crypto with stablecoins is viewed as trading crypto for crypto, so any profits are subject to Capital Gains Tax.

Of course, you may not actually have any tax liability on these transactions as stablecoins are often pegged to a fiat currency and therefore the price remains relatively stable.

Despite this, you'll still need to keep a record of these transactions for HMRC.

Buying crypto with stablecoins UK

Do you pay tax when you sell cryptocurrency in the UK?

Yes - you'll pay tax whenever you sell cryptocurrency in the UK. The amount you pay will vary depending on your income.

Selling crypto is taxable in the UK

Selling crypto for GBP

CAPITAL GAINS TAX

Selling crypto for fiat currency like GBP is a disposal and subject to Capital Gains Tax.

You'll pay either 10% or 20% on the profits from your sale, depending on how much you earn in regular income.

Example

Archie buys 1 ETH in July 2021. The price of ETH the day he buys it is £1,500. This is his cost basis.

He sells 1 ETH in November 2021 for £3,500. He needs to figure out his capital gain by subtracting his cost basis from his sale price.

£3,500 - £1,500 = £2,000. This is his capital gain.

Archie earns £40,000 a year. This puts him in the Basic Income Tax Band, so he'd pay 10% tax on his capital gains.

However, Archie has no other capital gains this year, so he is within the Capital Gains Tax free allowance of £12,300 (for 2021-2022 FY). He'll pay no tax on his capital gain.

Selling crypto for crypto

CAPITAL GAINS TAX

Selling your crypto for another crypto is a disposal - so it's subject to Capital Gains Tax.

To calculate your capital gain or loss, subtract the cost basis of the asset you disposed of from the fair market value of the asset on the day you traded it.

Do you pay tax when transferring crypto?

No! You shouldn't pay tax on your crypto when you're transferring it between the wallets or exchanges you use. This said - things are rarely this simple when it comes to UK crypto tax and transactions like transfer fees or adding and removing liquidity are a little more confusing from a tax perspective.

Moving crypto between wallets

TAX FREE

Transferring crypto between your own crypto wallets or exchanges is tax free. It isn't viewed as a disposal by HMRC so you won't pay Capital Gains Tax on these transactions.

Think of moving crypto between wallets like moving fiat currency between two bank accounts that you own.

Having said all this, it's still really important you keep good records of these transfers because when it comes to transfer fees, things get a little more complicated.

Transfer fees

CAPITAL GAINS TAX

When you transfer your crypto - your wallet provider or crypto exchange will often charge you a transfer fee to do so.

If you pay this transfer fee in fiat currency - like pounds - this is tax free.

However, in most instances, you won't be paying this fee in fiat currency, you'll be paying it in cryptocurrency, and spending crypto is a taxable event. It's seen as a disposal of an asset and you'll need to pay Capital Gains Tax on any profit.

HMRC has pretty specific guidance on what is an allowable cost in crypto. These are costs you can add to your cost basis and transfer fees are not included in this list. So we can safely assume transfer fees cannot be added to your cost basis and they would be viewed as disposals in some instances.

Example

You bought 1 ETH. The price of 1 ETH when you bought it is £3,338.

You decide you want to move your ETH from your Binance wallet to your MetaMask wallet. Binance charges you a flat transfer fee of 0.005 ETH.

You're paying in ETH - so you're disposing of ETH. So you need to calculate your cost basis and the fair market value of your crypto at the point of disposal. To keep it simple, let's say the price of ETH hasn't changed since you bought it as you moved it straight out of your Binance wallet.

0.005 ETH = £16.70 This is your disposal. You don't have a capital gain or loss, but HMRC may wish to see records of disposals during tax compliance checks, so you should always keep a record of these disposals.

Koinly makes this easy with its "treat transfer fees as disposals" setting.

Adding or removing liquidity

CAPITAL GAINS TAX

Deep into DeFi? Most DeFi protocols use liquidity pools. If you're investing in these, at a glance you might not think of them as a taxable event. They're more akin to transferring your crypto from one place to another because you're not actually disposing of the asset.

HMRC however disagrees. They say if you receive a liquidity pool token in exchange for your crypto - it's a disposal. You can add up your cost basis based on the tokens you've sent to the pool and then subtract that amount from the fair market value of the tokens at the point of disposal. Your liquidity pool tokens then inherit this as the cost basis for when you want to remove them from the pool.

Adding and removing liquidity UK

How are airdrops and forks taxed in the UK?

HMRC has clear guidance on how both airdrops and forks are taxed in the UK. It's good news for forks, but bad news for airdrops. You'll pay no tax on soft or hard forks in the UK. But you'll pay both Income Tax and Capital Gains Tax on airdrops. Let's break it down.

Soft and hard forks

TAX FREE

HMRC has clear guidance on how they tax forks.

For soft forks, you'll receive no new assets - you can't pay any tax.

For hard forks, where you receive a new coin as a result of a fork - you still won't pay any Income Tax on receipt of these coins. However, your cost basis from any coins received from a hard fork is derived from your existing tokens from the previous blockchain - not the fair market value of the coin on the day you received it.

This matters because when you later spend, sell, swap, or gift coins you received from a hard fork - they will still be subject to Capital Gains Tax at this point, just like any other crypto.

Tax on hard forks uk

Receiving an airdrop

INCOME TAX

In most instances, HMRC says you'll pay Income Tax on airdrops.

HMRC considers airdrops income whenever you've done something to earn them. This could include actions as simple as sharing a social media post or being rewarded due to your previous trades on a given blockchain. So in most instances, your airdrops are going to be considered income and subject to Income Tax.

However, airdrops are not considered income if you receive them without providing some kind of service or action in return.

tax on airdrops ukYou can calculate how much income you have by identifying the fair market value of the tokens on the day you received them in GBP.

Example

You receive 200 1INCH tokens from an airdrop. On the day you receive them, the fair market value per token is £3.50. Your tokens are subject to Income Tax, so you need to calculate their total worth.

£3.50 x 200 = £700. You've made an additional income of £700 which you need to pay tax on at your normal Income Tax rate.

You earn £45,000 a year. Your additional income of £700 doesn't push you into a higher tax band, so you'll pay 20% tax on £700, or a total of £140 in tax.

Selling or swapping coins from an airdrop

CAPITAL GAINS TAX

The bad news keeps on coming. Not only will you pay Income Tax when you receive an airdrop, but you'll pay Capital Gains Tax when you later sell, swap, spend, or gift coins or tokens you received from an airdrop.

Your cost basis for airdrops is the fair market value on the day you received them in GBP.

Example

You sell your 200 airdropped 1INCH tokens a couple of days after. The fair market value per token is £4, so you make £800. You already know your cost basis is £700.

£800 - £700 = £100. You've made a capital gain of £100.

Your income is £45,000. This puts you in the basic tax band, so you'll pay 10% in Capital Gains Tax, so a total of £10.

Crypto gifts and donations tax

Gifting crypto in the UK is taxed. It's seen as a kind of disposal and therefore subject to Capital Gains Tax.

Crypto gifts and donations UKHowever, you can gift crypto to your spouse or civil partner tax free and you can donate crypto to a registered charity tax free. Let's look at each different transaction.

Gifting crypto to a friend

CAPITAL GAINS TAX

If you give cryptocurrency as a gift to someone other than your spouse or civil partner, you will have to figure out the market value (in pound sterling) of the crypto on the date that it was given away as a gift. This will be considered as sales proceeds for Capital Gains Tax purposes.

Importantly, if income tax has already been charged on the value of the tokens that are gifted, section 37 Taxation of the Capital Gains Tax Act 1992 will apply. This basically means that the "sales proceeds" will be reduced by the amount that has already been subject to income tax, and then be subjected to CGT.

Example

Janie is a UK resident who received crypto worth £500 as a gift from her mother. She sold it in May 2018 for £700. The pooled value of her crypto was £500 and her capital gain was £200. Janie's taxable income is £160,000 and she falls in the category of an additional rate taxpayer. As a result, her total CGT on the disposal of the crypto would be 20% of £200 or £40.

Gifting crypto to your spouse or civil partner

TAX FREE

You can gift crypto to your spouse or civil partner tax free in the UK. There is no limit on how much you can gift.

This might not seem like a big deal, but it is. This legal tax loophole can let you take advantage of each individual Capital Gains Tax allowance in your household, as well as potentially a lower Income Tax band - all reducing your overall Capital Gains Tax bill.

Example

Mark buys 2 BTC for £10,000 each. He sells 1 BTC himself for £25,000, making a capital gain of £15,000. He subtracts his Capital Gains Tax allowance of £12,300 (for 2021-2022 FY) from his capital gain and is left with £2,700. This is the amount he'll pay tax on.

Mark earns £160,000 a year, which puts him in the 20% Capital Gains Tax band. So he'll pay 20% tax on £2,700, or a total of £540.

Mark has used up his Capital Gains Tax allowance and he'd still like to sell his other BTC. He gifts 1 BTC to his wife Hannah. He pays no tax to do this.

Hannah receives the 1 BTC and sells it for £25,000. She inherits the cost basis of £10,000, so she's also made a capital gain of £15,000.

Hannah hasn't used her Capital Gains Tax allowance yet, so she also subtracts her Capital Gains Tax allowance of £12,3000 (for 2021-2022 FY), leaving £2,700.

Hannah earns £45,000 a year, which puts her in the 10% Capital Gains Tax Band. She'll pay 10% tax on £2,700, so a total of £270.

Overall, Mark has reduced their Capital Gains Tax bill from a worst-case scenario of 20% tax on a net capital gain of £17,700 (a whopping £3540) to a total Capital Gains Tax bill of £810 between him and his wife, saving £2,730 in tax!

Donating crypto to a registered charity

TAX FREE

Donating crypto to a registered charity is tax free in the UK.

If an individual donates crypto to charity, they are entitled to Income tax relief on the donated amount. They can also get an exemption from Capital Gains Tax although there are two exceptions:

In case the individual sells the crypto assets to the charity at a cost that is more than the acquisition cost, they will have to pay CGT on the difference between the selling price (instead of the market price) and the acquisition cost.

In case they make a¬†tainted donation¬†‚ÄĒ this refers to a situation where an individual makes arrangements with a charity to get some form of kickback/financial advantage.

Crypto mining tax UK

Mining cryptocurrency in the UK can either be considered a hobby or a full-fledged business. This will depend on several factors such as:

  • degree of activity

  • organisation

  • risk

  • commerciality

Hobby miners will pay Income Tax on mined coins, as well as Capital Gains Tax when they later dispose of those mined coins. Meanwhile, for business miners, mining income will be added to trading profits and be subject to Income Tax.

Crypto Mining Tax UK

Mining crypto as a hobby

INCOME TAX & CAPITAL GAINS TAX

If your mining activity is classified as a hobby, then any income from mining has to be declared separately under the heading of "miscellaneous income" on your tax return.

The income in this case will be the fair market value of the crypto at the time you receive it in GBP.

Appropriate expenses can be deducted from this income before adding it to the taxable income, which should be found here.

Also keep in mind that when you dispose of this crypto, that will be subject to Capital Gains Tax.

Mining as a business

INCOME TAX

If mining is classified as a business based on the criteria mentioned above, then the mining income will be added to trading profits and be subject to Income Tax. Similarly, fees or rewards received from any mining/staking activity will also be added to taxable income. Appropriate expenses would be deductible, of course.

While disposing of such cryptocurrency, any gain in value from the time of acquisition will be added to the trading profits. You will also have to pay National Insurance contributions for this transaction.

Crypto day trading tax UK

HMRC doesn't have specific guidance on crypto trading like margin trading, crypto futures, and other CFDs. However, there is guidance on general day trading tax in the UK. How you're taxed depends on whether you're:

  • Speculative - like gambling. No tax applied.

  • Self-employed - same rules as normal business activity. Business Tax applied.

  • Private investor - not doing this full-time. Capital Gains Tax on profits from closed positions, excluding spread betting.

The vast majority of crypto investors will be considered private investors. It all depends on the scale at which you're doing it, but if you're working a regular job alongside crypto investing - chances are you'll be considered a private investor.

For those interested in optimizing their day trading experience, we've got a guide to the best crypto exchanges for day trading to help you select a great platform for your needs as a day trader.

Let's look at how each different trading product is taxed.

Margin trading and other CFDs

CAPITAL GAINS TAX

If you're seen to be trading as a private investor - you'll pay Capital Gains Tax on profits from margin trades and other CFDs. So when you open a position, you won't pay tax. It's only when you close your position that you'll realise a capital gain or loss and pay Capital Gains Tax on any profits.

In the instance of liquidation - when your collateral is sold - this is a disposal from a tax perspective and therefore should be reported to HMRC.

Derivatives, futures, and spread betting

TAX FREE

Spread betting in the UK is controversial to say the least. It's the reason thousands of crypto exchanges have been banned from operating in the UK as they won't remove derivative products like Bitcoin futures or agree to be regulated by the FCA.

Spread betting in the UK is considered gambling - like speculation - which means it isn't subject to Capital Gains Tax. For private investors in the UK, this means you won't pay Capital Gains Tax on spread bets.

This is, however, a bit of a legal grey area. The FCA has banned crypto derivatives products without written consent from the FCA. So you should speak to a crypto tax advisor for more bespoke advice on these investments.

DeFi crypto taxes UK

DeFi is a fairly new concept, but HMRC has now released proposed guidance about it as of February 2022. You might think it's good news but it doesn't really clarify too much as it all comes down to how your specific DeFi protocol works.

It all comes down to the 'nature of the transaction' and whether it has the nature of capital or the nature of revenue. The former would be subject to Capital Gains Tax, while the latter would be subject to Income Tax. Helpful, right?

To try and simplify this a bit more, a lot of your DeFi trades are going to be seen as disposals now. This includes adding/removing liquidity, staking crypto, and in some instances the rewards you receive from DeFi protocols - if you receive that reward in one large sum (like if you traded a liquidity pool token that had increased in value).

Meanwhile, returns may be seen as income in some instances. HMRC says this is more likely if:

  • The return to be received has been agreed upon - as opposed to speculative and unknown.

  • If the return is paid by the borrower/DeFi platform.

  • If the return is paid periodically throughout the period of lending/staking.

So if you're earning new tokens or coins on a periodic basis through your DeFi activities - this is more likely to be seen as income and subject to Income Tax.

Defi tax UKThe tax you'll pay on DeFi transactions depends on whether you're seen to be 'earning' crypto or 'disposing' of crypto. Anytime you're seen to be 'earning' crypto - you'll pay Income Tax. Anytime you're seen to be disposing of crypto by swapping it, selling it, or spending it - you'll pay Capital Gains Tax. Based on the current guidance from HMRC, we can infer DeFi taxes would likely break down into the following:

  • Lending/loaning crypto through DeFi protocols or P2P: Capital Gains Tax.

  • Interest payments from lending crypto: Income or Capital Gains Tax depending on how it's paid.

  • Borrowing from DeFi protocols:¬†Capital Gains Tax when the loan is paid back.

  • Paying interest in DeFi protocols:¬†An allowable expense.

  • Selling or swapping NFTs:¬†Capital Gains Tax.

  • Buying NFTs:¬†Capital Gains Tax if you pay in crypto. Tax free if it's GBP.

  • Staking rewards from DeFi protocols:¬†Income Tax/Capital Gains Tax depending on how rewards are paid.

  • Yield farming rewards from DeFi protocols:¬†Income Tax/Capital Gains Tax depending on how rewards are paid.

  • Earning liquidity pool tokens from DeFi protocols:¬†Income Tax/Capital Gains Tax depending on how rewards are paid.

  • Adding liquidity to liquidity pools: Capital Gains Tax if you receive a liquidity pool token in return.

  • Removing liquidity from liquidity pools:¬†Capital Gains Tax if you're exchanging a liquidity pool token to do so.

  • Earning through play/engage to earn DeFi protocols:¬†Likely Income Tax.

  • Profits from DeFi margin trading and options protocols:¬†Capital Gains Tax.

An important note, HMRC has announced a second consultation on DeFi and staking. Specifically, the tax office is considering disregarding Capital Gains Tax implications from any disposal of beneficial ownership that may occur through lending or staking. If this outcome occurs, it would make the UK particularly appealing for crypto investors from a tax perspective as few other countries have taken this view. Koinly will be participating in the consultation and we'll update this guide as soon as more guidance follows.

Earning from DeFi protocols

INCOME TAX

Anytime you're seen to be 'earning' from DeFi - whether that's new coins or tokens - it's likely that HMRC will view this as additional income and you'll pay Income Tax based on the fair market value of the asset in GBP on the day you received it.

Selling or trading tokens on DeFi protocols

CAPITAL GAINS TAX

Anytime you sell or trade a coin or token on a DeFi protocol, this is likely to be viewed as a disposal by HMRC, making it subject to Capital Gains Tax. You'll pay tax on any profits as a result of a disposal.

Do you pay tax when spending crypto?

Thinking of putting your crypto towards a console? Bad news, you might need to pay Capital Gains Tax.

Spending crypto on goods or services

CAPITAL GAINS TAX

Spending your crypto is subject to Capital Gains Tax because you're disposing of your asset.

You'll need to calculate any capital gain or loss by subtracting your cost basis from the fair market value of your crypto on the day you spent it.

If the price of your asset has increased since you acquired it, you'll need to pay Capital Gains Tax on that profit.

If the price of your asset has decreased since you acquired it, you have a capital loss you can offset against gains.

How to calculate your crypto taxes

Calculating your crypto taxes so you can report them to HMRC - especially if you trade at volume - is time-consuming. You can do it all manually, or you can use a crypto tax calculator like Koinly to save you hours.

If you want to calculate your crypto taxes manually, follow these steps:

  1. Identify all your taxable crypto transactions for the entire financial year you're reporting on.

  2. Identify which transactions are subject to Income Tax and which transactions are subject to Capital Gains Tax.

  3. Identify the cost base for each transaction using the Share Pooling Cost Basis Method.

  4. Calculate your subsequent capital gains and losses, income, and expenses.

  5. Subtract your net capital loss from your net capital gain.

If your net capital gain is less than the £6,000 Capital Gains Tax Allowance (for 2023-2024 FY), you'll only need to report your crypto taxes to HMRC if:

  • Your gross proceeds of the disposals exceed ¬£49,200 (even if your gains are lower than the allowance).

  • You‚Äôre registered for Self Assessment.

If your net capital gain is more than your Capital Gains Tax Allowance, you'll need to report this to HMRC. It's a lot of work, but you can save hours with Koinly.

How to use a crypto tax app like Koinly

Don't get stuck in the busy work. Don't get it wrong. Don't rely on your accountant to know where to look. Use Koinly to generate your HMRC crypto tax report. Here's how easy it is:

1. Sign up for a FREE Koinly account

It only takes a minute!

2. Select your base country and currency

In this instance, the United Kingdom and Great British Pounds.

3. Select your accounting method

Koinly supports the UK Share Pooling Cost Basis Method. This is the only cost basis method allowed in the UK, so you shouldn't change it.

Koinly settings share pooling UK

4. Connect Koinly to your wallets, exchanges, or blockchains

Koinly integrates with more than 850+ crypto exchanges, wallets, and blockchains. (See all) If you can't find yours, let us know - we're always adding more.

5. Let Koinly crunch the numbers, make a coffee

Koinly will calculate your cost basis for each crypto asset like ETH, ADA, Bitcoin, and many more. Koinly will calculate each capital gain or loss from your disposals, as well as your crypto income and expenses.

6. Ta-da! Your data is collected and your full tax report is generated!

Head to the tax reports page in Koinly and check out your tax summary. This includes your net capital gains, other gains, income, costs, expenses, and any gifts, donations, or lost crypto.

Tax summary in Koinly UK

7. To download your crypto tax report, upgrade to a paid plan from £39 per year

Download what you need, when you need it. For UK investors, you can download your HMRC Capital Gains Summary in seconds.

Tax reports in Koinly

8. Send your report to your accountant, or complete your Self Assessment Tax Return yourself

Use the generated file to complete your Self Assessment Tax Return or send it over to your accountant. Job done.

What kind of records might HMRC ask for?

As far as crypto record keeping is concerned, HMRC correctly states that many exchanges do not keep detailed information about crypto transactions and the onus of maintaining these transactions accurately rests with the taxpayer. These details include:

  • the type of crypto asset

  • date of the transaction

  • whether the crypto assets were bought or sold

  • the number of units involved

  • value of the transaction in pound sterling

  • the cumulative total of the investment units held

  • bank statements and wallet addresses, as these might be needed for an inquiry or review

You should ensure you download reports regularly from your exchanges as they can lose your data or just delete it permanently after a certain period of data. Again, using tax software like Koinly can help you maintain such a ledger.

Crypto tax hmrc records

How to file crypto taxes with paper forms

Still sticking to pen and paper filing? No worries, Koinly can help. Follow these steps:

  1. Calculate your crypto tax. You need to know your capital gains, losses, income, and expenses.

  2. Register to file taxes online with the Government Gateway service by the 5th of October 2024 if you’re not already registered.

  3. Fill out the Self Assessment Tax Return (SA100). Report any income from crypto over in box 17.

  4. If you made crypto capital gains, check yes on box 7. Fill out the supplementary Self Assessment: Capital Gains Summary (SA108).

  5. Submit your Self Assessment Tax Return online to HMRC by midnight on 31st of January 2025. You’re done!

How to pay tax on cryptocurrency UK

Once you've filed your Self Assessment Tax Return with HMRC reporting your crypto gains and income - HMRC will let you know how much tax you owe on your crypto. You'll need to pay cryptocurrency taxes by the 31st of January 2025.

This is the same deadline as filing your taxes, so we recommend doing this before this date so you're not stuck in the lurch with a large tax bill that needs to be paid straight away!

How to avoid paying tax on cryptocurrency UK

There are ways to strategically - and legally - reduce your crypto taxes. To potentially pay less tax in 2024, you'll need to make your move before the end of the financial year - and big changes are coming to UK tax breaks. See our guide on how to pay less crypto tax legally by optimising your tax position before the 5th of April 2023.

Learn how to avoid crypto tax in the UK legally

Cryptocurrency trading as a business

If you are carrying on a business that involves cryptocurrency transactions, then the rules are more complex.

You may be liable to pay a number of different taxes like CGT, Income Tax, Corporation Tax, Stamp Duties, and even VAT depending on the type of transaction.

Note that HMRC may decide to treat you as a business even if you are an individual if your level of activity is comparable to a business. So how does HMRC decide whether you're holding crypto as an investment or whether you qualify as a crypto trader? Here's what HMRC has to say about it:

"Only in exceptional circumstances would HMRC expect individuals to buy and sell crypto assets with such frequency, level of organisation, and sophistication that the activity amounts to a financial trade in itself. If it is considered to be trading then Income Tax will take priority over Capital Gains Tax and will apply to profits (or losses) as it would be considered as a business"

In this case, a trade in crypto assets would be similar to trading in shares, securities, etc. This means that crypto traders can refer to the Business Income manual (BIM56800) for more information on the relevant approach.

Look out for HMRC nudge letters

In October 2021, HMRC announced that it plans to probe digital currency holders over undeclared gains. The letters are sent to encourage crypto investors to pay the correct amount of Income Tax and Capital Gains Tax on their crypto asset holdings.

The best way to avoid an unwelcome visit from HMRC is to report and pay your crypto taxes accurately.

Which crypto exchanges report to HMRC?

But what about your specific UK crypto exchange? Does Binance report to HMRC? What about Coinbase and HMRC?

HMRC stated back in 2019 that they requested customer data crypto from exchanges that do business in the UK including Coinbase, eToro, and CEX.

These are the only crypto exchanges they've named so far. But before you breathe a sigh of relief, just because HMRC hasn't named the crypto exchange you use doesn't mean they haven't contacted them. HMRC is cracking down on crypto - so it is safe to assume HMRC will have contacted all the major crypto exchanges doing business in the UK, such as Binance, Kraken, KuCoin, Gemini, CoinJar, Crypto.com, Bittrex, and Gate.io.

You might recall that in 2020, Coinbase handed over data on UK customers who transacted more than £5,000 worth of cryptocurrency between 2017 and 2019.

Centralised and decentralised exchanges

The way HMRC is able to deal with individuals’ cryptocurrency taxes depends on what type of exchange they were using.

Centralised exchanges, such as Binance and Kucoin use a system referred to as KYC - Know Your Customer, which requires an Identify check to find out where you live and who you are, so your trades can be verified to you, similar to stock market trading.

Due to this KYC Identity check, your information will be passed along to HMRC, making them aware of any losses or gains you may have made in the past year.

On the other hand, decentralised exchanges such as Pancake Swap or Uniswap do not require any KYC and are completely decentralized, often referred to as DeFi, or Decentralised Finance as there is no centralised body. Users engaging with DeFi through private wallets, where only they have access to the keys, are much harder to track down for HMRC and are required to personally make sure they are filing their taxes properly.

Remember: HMRC will come looking if suddenly a large deposit of fiat is made into your bank account, or a large amount of cryptocurrency, whether it be bitcoin, altcoins, or stablecoins, into an exchange wallet owned by you.

Banner with Koinly logo and text: Get Your Crypto Tax Report

Your frequently asked questions

Still not found the answers you're looking for? Here are some of our most common questions about cryptocurrencies and the UK.

‚öĖ Is cryptocurrency legal in the UK?
‚õŹ Is crypto mining legal in the UK?
ūüöę Can crypto tax be avoided in the UK?
ūüďĚ How is crypto tax calculated UK?
ūüēĶ‚Äć‚ôāÔłŹ Can HMRC track Bitcoin?
ūü™ô Does Binance report to HMRC UK?
ūüü° Does Coinbase report to HMRC?
ūüíł How much crypto can I sell without paying taxes?
ūüďÖ Do you only pay tax on crypto when you cash out?
ūüíį Do I need to report crypto if I didn't sell?

Disclaimer
The information on this website is for general information only. It should not be taken as constituting professional advice from Koinly. Koinly is not a financial adviser. You should consider seeking independent legal, financial, taxation or other advice to check how the website information relates to your unique circumstances. Koinly is not liable for any loss caused, whether due to negligence or otherwise arising from the use of, or reliance on, the information provided directly or indirectly, by use of this website.