The adoption of cryptocurrencies in the UK continues to grow, bringing with it essential tax obligations. Her Majesty’s Revenue & Customs (HMRC) treats cryptoassets as property or investments—not as currency. This means that buying, selling, or earning digital assets may trigger Capital Gains Tax (CGT) or Income Tax, depending on the nature of the transaction. Failing to report crypto-related income or gains can result in penalties, making it vital for individuals to understand their responsibilities.
This comprehensive guide outlines how cryptocurrency is taxed in the UK under HMRC rules as of 2025. We’ll explore capital gains from trading, income tax on staking and airdrops, and special cases such as NFTs, DeFi activities, lost assets, and gifting. With real-world examples and clear explanations, you'll gain a practical understanding of your tax duties.
Understanding Crypto Taxation in the UK
Are cryptocurrencies taxable in the UK? Yes—nearly all crypto transactions can be taxable events. HMRC does not classify crypto as legal tender but rather treats it similarly to stocks or real estate. Two primary taxes apply:
- Capital Gains Tax (CGT): Applies when you dispose of crypto held as an investment.
- Income Tax: Applies when you receive crypto as payment for goods, services, or rewards.
What Constitutes a Taxable Disposal?
A "disposal" under HMRC rules includes:
- Selling crypto for fiat (e.g., GBP).
- Trading one cryptocurrency for another.
- Using crypto to pay for goods or services.
- Gifting crypto to someone who isn’t your spouse or civil partner.
Note: Donating crypto to a registered charity is typically exempt from CGT.
When Is Income Tax Applied?
You may owe Income Tax if you receive crypto through:
- Salary or freelance payments.
- Mining or staking rewards.
- Interest from lending (including DeFi platforms).
- Airdrops received in exchange for services.
Not every action triggers tax. Simply buying crypto with fiat or transferring between your own wallets does not count as a disposal. Holding assets incurs no tax—only when you sell, trade, spend, or earn crypto do tax implications arise.
Key Tax Rates and Allowances (2025)
- CGT Annual Exempt Amount: Reduced to £3,000 for the 2024–25 tax year.
- CGT Rates: 18% (basic rate) and 24% (higher/additional rate).
- Personal Allowance (Income Tax): £12,570.
- Income Tax Bands: 20%, 40%, and 45% based on total income.
In short: Profits above your CGT allowance are taxed; income from crypto is taxed at receipt. Future gains on those same assets will also be subject to CGT.
Capital Gains Tax on Cryptocurrency
Most investors deal with CGT when they dispose of their holdings.
When Does CGT Apply?
CGT applies when you:
- Sell crypto for GBP.
- Trade BTC for ETH or any other token swap.
- Use crypto to buy products.
- Gift crypto to friends or family (excluding spouses).
Gifts to spouses are treated as no gain, no loss transfers and do not trigger tax.
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How to Calculate Capital Gains
Follow these steps:
- Convert values to GBP using market prices at the time of disposal.
- Determine cost basis, including purchase price and transaction fees.
- Subtract cost and allowable expenses from proceeds to find gain/loss.
- Apply losses and your allowance—only net gains over £3,000 are taxable.
Example: Alice sells 1 ETH bought for £800 when its value is £1,500. Her gain is £700. If this is her only gain and she has no losses, no CGT is due due to the £3,000 allowance.
HMRC Pooling Rules
HMRC uses share pooling for identical tokens:
- All purchases of the same asset form a single pool.
- Average cost per unit determines the base value.
- Same-day sales and “bed and breakfast” trades (rebuying within 30 days) are matched separately.
Example: John owns 2 BTC with a total cost of £30,000. He sells 0.5 BTC worth £9,000. His cost basis: (0.5 / 2) × £30,000 = £7,500. Gain: £1,500 — below allowance, so no tax.
Losses must be reported by the self-assessment deadline to carry forward.
Reporting Deadlines
- Tax Year: 6 April to 5 April.
- Deadline for Self Assessment: 31 January following the end of the tax year.
- Real-Time Reporting: Some disposals must be reported within 60 days.
Income Tax on Crypto Earnings
Certain crypto inflows are considered income, not capital gains.
Common Scenarios
- Receiving salary in crypto.
- Earning staking or mining rewards.
- Collecting DeFi yield or referral bonuses.
- Airdrops tied to tasks or promotions.
Frequent traders may be seen as running a business—consult a professional if applicable.
How It’s Taxed
- Value received in GBP at fair market value.
- Added to your total income and taxed at your marginal rate.
- National Insurance contributions may apply if earned via employment.
A £1,000 miscellaneous income allowance covers small staking or mining earnings.
Example: Bob earns £1,800 from mining and has £200 in other side income. He uses the £1,000 allowance and pays tax on £1,000 at 20%.
Later, any increase in value will be subject to CGT when sold.
Special Crypto Transactions and Their Tax Treatment
Mining & Staking Rewards
- Treated as miscellaneous income if casual.
- Considered trading income if conducted as a business (allows expense deductions).
- Taxed upon receipt when under your control.
Airdrops and Hard Forks
- Unsolicited airdrops: No Income Tax; zero cost basis for future CGT.
- Conditional airdrops: Taxable as income; value becomes cost basis.
Example: Receive free tokens worth £500 → no tax now. Sell later for £600 → £600 CGT gain.
For hard forks, split original cost between old and new coins based on relative market values.
NFTs
- Collectors: CGT applies on profits; each NFT tracked individually.
- Creators: Minting and selling NFTs generates taxable income.
- Royalties: Income when received.
Example: Buy NFT for £750, sell for £2,400 minus £100 fees → £1,550 taxable gain.
DeFi Transactions
DeFi interactions often involve multiple taxable events:
- Depositing into liquidity pools may trigger CGT.
- Yield rewards are taxable as income.
- Borrowing against collateral may create disposals if new tokens are issued.
Example: Deposit 1 ETH (cost: £1,200) valued at £2,000 → £800 CGT gain.
Lost or Stolen Crypto
No automatic disposal occurs. However, you can file a negligible value claim to treat lost assets as disposed of for £0, allowing loss recognition.
Example: Lose access to 0.5 BTC costing £5,000 → claim loss of £5,000.
Gifting and Inheritance
- Gifts to spouse: No CGT; original cost basis carries over.
- Gifts to others: Market value disposal; recipient’s basis equals gift value.
- Inheritance: No immediate CGT; stepped-up basis at death; potential Inheritance Tax applies.
Frequently Asked Questions (FAQs)
Do I owe tax on crypto-to-crypto trades?
Yes—swapping one cryptocurrency for another is a taxable disposal under HMRC rules.
Is simply holding crypto taxable?
No. Holding assets without disposal or receiving income triggers no tax.
Must I report gains below the CGT allowance?
Only if total proceeds exceed £50,000 or you're already filing a Self Assessment return.
What about small staking rewards?
Rewards under £1,000 in miscellaneous income are usually tax-free and don’t require reporting.
If I paid Income Tax on crypto, am I still liable for CGT later?
Yes—CGT applies only to appreciation after the value you already paid Income Tax on.
Are there any completely tax-free crypto activities?
Yes—wallet transfers between your accounts, gifts to spouses, charity donations, unsolicited airdrops, and buying with fiat.