Cryptocurrency has gained significant traction as an investment and a medium of exchange. However, many individuals and businesses fail to consider the tax implications associated with buying, selling, and holding digital assets. In the UK, HMRC (His Majesty’s Revenue and Customs) treats cryptocurrency as property, meaning that transactions involving digital assets may be subject to Capital Gains Tax (CGT), Income Tax, and Inheritance Tax.
Is Cryptocurrency Taxable in the UK?
Yes, cryptocurrency is taxable in the UK. However, taxation depends on how you use your crypto. HMRC classifies cryptocurrency as a capital asset rather than currency, meaning gains from crypto transactions are usually subject to Capital Gains Tax (CGT) rather than traditional income tax.
If you trade cryptocurrency regularly or receive crypto as payment, your activities may be taxed under Income Tax rules instead.
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Tax on Buying Cryptocurrency
Is Buying Crypto Taxable?
Simply buying and holding cryptocurrency is not a taxable event. You will not owe tax when you purchase crypto, whether through a centralised exchange, a peer-to-peer platform, or a DeFi protocol.
When Does Buying Crypto Become Taxable?
You may trigger a tax liability when acquiring cryptocurrency in certain situations:
- Buying crypto with fiat (£ GBP) – Not taxable
- Receiving crypto as payment – Taxable as income
- Mining crypto – Taxable as income
- Staking or yield farming rewards – Taxable as income
- Airdrops (conditional rewards) – Taxable as income
It is essential to keep records of the date, amount, exchange rate, and transaction fees to calculate gains or losses when selling.
Tax on Selling Cryptocurrency
Selling cryptocurrency is a taxable event and may result in Capital Gains Tax (CGT) if you make a profit.
How is CGT Calculated?
Capital Gains Tax (CGT) applies when you sell, swap, or dispose of crypto. Your gain or loss is calculated as:
Capital Gain = Sale Price – Original Purchase Cost – Transaction Fees
Tax-Free Allowance (2024-25)
The annual CGT allowance is £3,000 (reduced from £6,000 in 2023-24). If your total gains from all assets, including crypto, are below this threshold, you do not owe CGT.
CGT Rates for Cryptocurrency
- Basic Rate Taxpayers (income up to £50,270): 10% CGT
- Higher & Additional Rate Taxpayers (income above £50,270): 20% CGT
When Does Selling Crypto Trigger CGT?
- Selling crypto for GBP (£) or other fiat – CGT applies
- Swapping crypto for another crypto (e.g., BTC to ETH) – CGT applies
- Using crypto to buy goods or services – CGT applies
- Gifting crypto (except to spouse or civil partner) – CGT applies
- Transferring crypto between your own wallets – Not taxable
Example CGT Calculation
If you bought 1 Bitcoin for £20,000 and later sold it for £30,000, your capital gain is:
£30,000 – £20,000 = £10,000
If you have no other gains and use your £3,000 CGT allowance, the taxable gain is £7,000. If you are a higher-rate taxpayer, your CGT liability is:
£7,000 × 20% = £1,400
It is advisable to offset losses from crypto investments against gains to reduce CGT liability.
Tax on Holding Cryptocurrency
Simply holding cryptocurrency does not trigger tax. However, certain activities while holding crypto can lead to tax obligations.
Earning Interest (Staking & Yield Farming) – Income Tax
If you earn rewards from staking, lending, or DeFi yield farming, HMRC considers this taxable income. The amount taxed depends on the fair market value (GBP) at the time of receipt and your total taxable income for the year.
Income tax rates for staking/yield rewards:
- Basic Rate (20%) – Income up to £50,270
- Higher Rate (40%) – Income between £50,270 and £125,140
- Additional Rate (45%) – Income above £125,140
Airdrops – Tax Treatment
- Conditional airdrops (requiring work or action) – Taxable as income
- Unsolicited airdrops (random giveaways) – Not taxable on receipt, but CGT applies when sold
Crypto & Inheritance Tax (IHT)
Cryptocurrency is treated as property for Inheritance Tax (IHT). If you pass away, your crypto assets may be subject to 40% IHT on estates exceeding £325,000.
To protect assets, consider:
- Transferring crypto to a spouse (spouse exemption applies)
- Using a trust or estate planning strategy
- Keeping a clear record of holdings for heirs
Reporting Crypto Taxes to HMRC
When Must You Report Crypto Taxes?
You must report crypto taxes if you:
- Have capital gains above £3,000 in a tax year
- Receive crypto income above your Personal Allowance (£12,570)
- Trade crypto regularly as a business activity
How to Report Crypto Taxes
- Self-Assessment Tax Return (SA100): Report capital gains and crypto income
- Capital Gains Summary (SA108): Declare gains or losses from crypto sales
- PAYE Adjustments: If employed, your tax code may change to account for additional crypto tax liability
Taxcan’s crypto tax experts can help you prepare and file your HMRC tax return correctly.
Reducing Crypto Tax Liability
Strategies to minimise crypto taxes:
- Use CGT Allowance (£3,000) – Sell strategically to stay within limits
- Offset Crypto Losses – Report losses to reduce taxable gains
- Spouse Transfers – Transfer assets between spouses tax-free
- Hold for the Long Term – Delaying sales avoids immediate tax liability
- Use ISAs for Related Investments – Crypto-related stocks in an ISA are tax-free
How Taxcan Can Help with Crypto Tax Compliance
At Taxcan, we specialise in helping individuals and businesses understand, report, and reduce their cryptocurrency tax liabilities.
Our Services Include:
- Crypto Tax Calculation & Reporting – Accurate CGT and Income Tax calculations
- Self-Assessment Filing – Hassle-free HMRC tax return submissions
- Crypto Tax Advisory – Personalised tax planning strategies
- Bookkeeping for Crypto Businesses – Professional accounting for traders and businesses
Why Choose Taxcan?
- AAT & ACCA-qualified accountants
- Expertise in crypto tax laws and HMRC compliance
- Affordable and stress-free tax filing services
If you need help with your crypto taxes, contact Taxcan today for expert guidance.
Final Thoughts
Cryptocurrency taxation in the UK is complex, and failure to comply with HMRC regulations can lead to penalties. Whether you are buying, selling, holding, or earning crypto, it is crucial to understand the tax implications and report transactions accurately.
If you’re unsure about your tax obligations, Taxcan’s crypto accountants can help you stay compliant while minimising your tax burden.
