Crypto Tax UK - A Complete Guide

Cryptocurrency has become increasingly popular, but with its rise comes complex crypto taxation. As more people invest in cryptocurrencies like Bitcoin and Ethereum, it’s essential to understand how taxes apply to these assets. In the UK, HMRC treats cryptocurrency as property, meaning you may owe tax on profits or gains made from trading, mining, or selling crypto.

By understanding the basics of crypto tax and keeping up with recent changes, you can ensure you meet your tax obligations and avoid potential penalties. This guide will walk you through everything you need to know about crypto tax in the UK, helping you understand the complex crypto taxation confidence.

In the UK, cryptocurrency is treated as an asset for tax purposes, meaning it can be subject to different types of taxation. When you sell, trade, or dispose of cryptocurrency and make a profit, you may need to pay Capital Gains Tax (CGT) on the increase in value. On the other hand, if you earn cryptocurrency through activities like mining, staking, or as payment for services, it’s considered taxable income and subject to Income Tax. Each year, you have a tax-free allowance for capital gains and income, but amounts above these limits are taxed according to your income tax bracket or CGT rate.

Who Needs to Pay Crypto Tax in the UK?

Both individuals and businesses need to pay crypto tax. Tax obligations vary depending on your involvement with cryptocurrency and whether you're operating as an individual or a business.

What Crypto Activities are Subject to Crypto Tax?

Whether you’re actively trading or passively holding digital assets, you need to be aware of when HMRC expects you to pay tax. Here are the main crypto activities that are subject to tax:

1. Buying and Selling Cryptocurrency

When you sell cryptocurrency for fiat currency (like GBP) or exchange one cryptocurrency for another (like Bitcoin for Ethereum), you are liable for Capital Gains Tax (CGT) on any profit you make. The taxable amount is the difference between the price you bought the crypto for and the price you sold it at. If you make a profit above the annual CGT allowance, you’ll need to report and pay tax on the gain.

2. Trading Cryptocurrency

Frequent buying and selling of cryptocurrencies, where it's clear that the activity is more than just casual investment, could be treated as a trading activity. In this case, any profits may be subject to Income Tax rather than CGT. HMRC may view your crypto activity as a business if it's regular and structured like a trading operation.

3. Mining and Staking Cryptocurrency

Crypto mining involves solving complex algorithms to validate transactions and earn new coins as a reward. Similarly, staking involves locking up crypto to help maintain blockchain networks and earn interest or rewards. Both activities are considered as income by HMRC, so the value of the crypto you earn from mining or staking is subject to Income Tax. You will need to report these earnings on your tax return.

4. Airdrops

If you receive cryptocurrency through an airdrop (free distribution of tokens), this can be considered taxable income, depending on the circumstances. If you receive the airdrop as part of an existing service or business activity, HMRC treats it as income, and you’ll owe Income Tax on its value at the time you receive it.

5. Getting Paid in Cryptocurrency

If you receive crypto as payment for goods or services, this is considered income and is subject to Income Tax. You need to convert the value of the cryptocurrency into GBP at the time of receipt and declare this amount as part of your taxable income.

6. Gifting Cryptocurrency

Gifting cryptocurrency to someone (except your spouse or civil partner) is treated as a disposal by HMRC, which means it is subject to Capital Gains Tax if the value of the crypto has increased since you acquired it.

1. Capital Gains Tax (CGT)

What is Capital Gains Tax (CGT)?

Capital Gains Tax (CGT) is a tax on the profit you make when you sell or dispose of an asset. For cryptocurrencies, CGT applies to the gains you make when you sell, trade, or otherwise dispose of your digital assets. Essentially, CGT is the tax you pay on the increase in value of your crypto assets from the time you acquired them to when you sold or disposed of them.

How to Calculate CGT on Crypto Assets

To calculate CGT on your crypto assets, follow these steps:

1. Determine the Acquisition Cost: This is the amount you paid to acquire the cryptocurrency. If you received the crypto as a reward or in another way, use the value of the crypto at that time as your acquisition cost.
2. Find the Disposal Value: This is the amount you received when you sold, traded, or otherwise disposed of the cryptocurrency. For trades, it’s the market value of the crypto you received in exchange.
3. Calculate Your Gain: Subtract the acquisition cost from the disposal value to determine your gain.

Formula:

Gain = Disposal Value − Acquisition Cost

4. Report Your Gain: Report this gain on your tax return, and pay CGT based on the amount.

Note: Manually calculating CGT is prone to errors, use our Capital Gains Tax Calculator to work out your crypto gains tax based on company profits.

CGT Allowance and Exemptions

For the 2024/25 tax year, the annual CGT allowance, known as the "Annual Exempt Amount", is £3,000. This means you can make up to £3,000 in capital gains before you need to pay CGT. If your total gains for the year are below this threshold, you do not owe any CGT.

Crypto Tax Rates

If your crypto profits exceed the Capital Gains Tax allowance of £3,000, you’ll have to pay crypto tax at the following rates:

CGT Example Calculations

Here are some examples to illustrate how CGT is calculated:

Example 1: Selling Crypto for Fiat

• Acquisition Cost: £2,500 (amount paid to buy the crypto)
• Disposal Value: £6,000 (amount received from selling the crypto)
• Gain: Gain = £6,000 − £2,500 = £3,500

With a gain of £3,500, you exceed the £3,000 allowance. You will owe CGT on the amount above the allowance.

Taxable Gain: £3,500−£3,000=£500

You will pay CGT on the £500 taxable gain.

Example 2: Trading Crypto

• Acquisition Cost: £4,000 (cost of the crypto you traded)
• Disposal Value: £6,500 (market value of the new crypto you received)
• Gain: Gain = £6,500 − £4,000 = £2,500

With a gain of £2,500, which is below the £3,000 allowance, you won’t pay CGT on this gain.

Example 3: Mixed Transactions

• Acquisition Costs: £2,000 (for Crypto A) and £1,500 (for Crypto B)
• Disposal Values: £3,000 (from Crypto A) and £1,200 (from Crypto B)
• Gains:
  Gain from Crypto A = £3,000 − £2,000 = £1,000
  Gain from Crypto B = £1,200 − £1,500 = −£300 (loss)
• Net Gain: Net Gain = £1,000 − £300 = £700

With a total net gain of £700, which is below the £3,000 allowance, you won’t pay CGT on this amount.

2. Income Tax

When is Income Tax Applicable?

Income Tax applies to the cryptocurrency you earn through various activities. Unlike Capital Gains Tax, which is applied to profits from selling or trading assets, Income Tax is charged on the value of cryptocurrency you receive as income. This includes crypto you earn from activities like mining, staking, and airdrops.

How to Calculate and Report Income from Crypto Activities

1. Determine the Value: For each crypto reward or airdrop, determine the value of the cryptocurrency at the time you receive it. This value is your taxable income.
2. Add to Income: Add the value of the crypto rewards and airdrops to your total income for the year. This includes combining income from all sources, such as your salary, freelance work, and crypto earnings.
3. Report on Your Tax Return: When you file your self assessment tax return, report the total amount of income from crypto activities. Ensure you include all your crypto income to avoid any issues with HMRC.

Thresholds and Allowances

In the UK, there is no specific allowance for crypto income like there is for capital gains. All income received from crypto activities, such as mining, staking, airdrops, and payments received, must be reported and is subject to Income Tax based on your overall income tax rate.

• Income Tax Rates: Your Income Tax rate depends on your total income for the year. For the 2024/25 tax year, the rates are:

1. Gather Your Records

• Collect all records of your cryptocurrency transactions, including buying, selling, trading, and receiving crypto. This includes transaction dates, amounts, and values.
• Use exchange statements, wallet histories, and any other documentation that shows your crypto activity.

2. Calculate Your Gains and Losses

• For each transaction, determine the acquisition cost and disposal value to calculate your gain or loss.
• Use the formula: Gain or Loss = Disposal Value − Acquisition Cost
• Sum up all your gains and losses over the tax year to determine your total capital gain or loss.

3. Determine Your Income from Crypto

• Add up all income from crypto activities, such as mining rewards, staking rewards, and airdrops.
• Report this income along with your other sources of income, such as salary or freelance work.

4. Complete Your Self-Assessment Tax Return

• Log in to your HMRC online account and complete the Self-Assessment tax return form.
• Enter your calculated gains under the "Capital Gains" section and your earnings under the "Income" section.
• Ensure that all information is accurate and that you have included all sources of crypto income and gains.

5. Submit Your Tax Return

• Review your completed tax return for any errors or omissions.
• Submit your tax return online through the HMRC website or by post before the deadline.

To make tracking and reporting your crypto transactions easier, consider using software like Koinly which offers automated calculations and integrates with various exchanges. With Koinly you automatically get cryptocurrency capital gains calculations across:

• 23,000+ cryptocurrencies
• 400+ exchanges
• 100+ wallet providers

Deadlines for Filing Self-Assessment Tax Returns

1. Paper Tax Return Deadline
   • If you choose to file your tax return by post, the deadline is October 31st following the end of the tax year. For the 2024/25 tax year, the deadline is October 31, 2025.
2. Online Tax Return Deadline
   • If you file your tax return online, the deadline is January 31st following the end of the tax year. For the 2024/25 tax year, the deadline is January 31, 2026.
3. Payment Deadline
   • Any tax due must be paid by January 31st following the end of the tax year. For the 2024/25 tax year, payment is due by January 31, 2026.

Penalties for Not Reporting Crypto Taxes

HMRC can issue penalties if you don’t report your crypto taxes accurately or on time. The penalties depend on whether your mistake was deliberate or unintentional, as well as how quickly you correct it:

• Late Filing Penalty: If you miss the self-assessment tax return deadline (usually January 31st), HMRC will issue a fixed penalty of £100. The longer you delay, the higher the fines.
• Failure to Report: If you don’t declare taxable crypto transactions, HMRC may impose penalties based on the amount of tax you owe. These penalties can range from 0% to 100% of the unpaid tax, depending on whether your failure to report was careless or intentional.
• Interest on Unpaid Tax: In addition to penalties, HMRC charges interest on any unpaid tax from the original due date.

How to Resolve Missed Declarations or Incorrect Filings

‍To avoid penalties, always report your cryptocurrency transactions accurately and on time. Here are steps to stay compliant:

• Amend Your Tax Return: If you realise you made a mistake in your crypto tax return or missed reporting some transactions, you can amend your tax return through your HMRC online account. Voluntarily correcting mistakes can reduce penalties.
• Keep Detailed Records: Maintain a clear record of all crypto transactions, including dates, amounts, and values in GBP.
• File on Time: Submit your self-assessment tax return before the deadline. Set reminders so you don’t miss important dates.
• Contact HMRC for Guidance: If you’re unsure how to correct your filings or missed reporting, contact HMRC for help. They can provide guidance on how to make things right and avoid further penalties.
• Consult a Crypto Accountant: If you’re unsure about your crypto tax obligations, seek professional advice. A crypto accountant can help you understand the rules and file accurately.

What Records You Need to Keep for Crypto Taxes

To file your crypto taxes correctly and stay compliant with HMRC, you need to keep accurate records of all your cryptocurrency transactions. Proper record-keeping makes it easier to calculate your gains, report your income, and claim any exemptions or reliefs. Here’s a list of the records you should maintain:

1. Transaction Details

• Dates: Record the date of each cryptocurrency transaction, whether it’s buying, selling, or trading. Accurate dates are important for calculating gains or losses and determining which tax year the transaction falls under.
• Amounts: Keep track of the amount of cryptocurrency involved in each transaction (e.g., how many Bitcoin or Ethereum were bought or sold).
• Values in GBP: You need to record the value of each transaction in British pounds (GBP) at the time it took place. Use the market rate on the day of the transaction to determine the GBP value.

2. Purchase and Sale Prices

• Acquisition Costs: Note how much you paid for the cryptocurrency, including any associated fees (like exchange or transaction fees). This will help you calculate your capital gains when you sell the cryptocurrency.
• Selling Price: Record the amount you received when you sold your cryptocurrency, again including any fees that were deducted.

3. Gains and Losses

• Capital Gains: Calculate the difference between the selling price and the acquisition cost for each transaction. This will show your profit or loss, which is important for reporting to HMRC and calculating your tax liability.
• Capital Losses: If you sell cryptocurrency at a loss, keep records of the loss, as you can use it to offset gains and reduce your tax liability.

4. Income from Crypto

• Mining and Staking Income: Record the value of any cryptocurrency you earned through mining or staking at the time it was received. This income is subject to Income Tax, so you’ll need to declare it in GBP.
• Airdrops and Gifts: If you receive cryptocurrency through airdrops or as a gift, record the value of the coins at the time you received them.

5. Crypto-to-Crypto Transactions

• If you exchange one cryptocurrency for another (e.g., swapping Bitcoin for Ethereum), this is treated as a disposal, and you must calculate any gain or loss based on the value of both cryptocurrencies at the time of the transaction.

6. Receipts and Invoices

• Receipts for Purchases: Keep any receipts or confirmation emails from exchanges showing when you purchased cryptocurrency, including the amount paid and any fees involved.
• Invoices for Sales or Payments: If you sell cryptocurrency or receive payments in crypto, keep copies of the invoices or transaction records showing how much you received.

7. Wallet and Exchange Statements

• Keep records from your cryptocurrency wallets or exchanges that show a history of your transactions. Many exchanges provide downloadable statements that list all your buys, sells, and transfers in one place.

8. Costs Related to Crypto Activities

• Transaction Fees: Keep track of any fees paid when buying, selling, or transferring cryptocurrency, as these can reduce your overall capital gains.
• Mining or Staking Costs: If you incur costs from running mining or staking operations (such as electricity or hardware costs), you may be able to deduct these expenses from your income.

You can claim certain expenses related to your crypto activities you can deduct from your overall taxable gains. These deductions help reduce your total tax liability. Below are tax-deductible crypto expenses you can claim:

Transaction Fees

• Exchange fees for buying or selling crypto
• Blockchain transaction fees (e.g., gas fees on Ethereum)

Costs of Acquiring Cryptocurrency

• Purchase price of the cryptocurrency
• Fees related to acquiring the crypto (e.g., exchange fees at the time of purchase)

Professional Services

• Accountant fees for preparing crypto-related tax returns
• Costs for crypto tax software subscriptions

Equipment and Electricity Costs (For Miners)

• Mining hardware (e.g., GPUs, ASIC miners)
• Electricity costs for running mining operations
• Maintenance costs for mining equipment

Advertising and Marketing Costs (For Traders and Businesses)

• Expenses for promoting crypto trading services or products

1. Failing to Track All Transactions: Many people overlook small or infrequent transactions, but every buy, sell, trade, and receipt of cryptocurrency needs to be tracked. Missing these transactions can lead to incorrect reporting and tax liabilities.
2. Not Converting Crypto to GBP: When calculating gains or income, you must convert cryptocurrency values to GBP (British pounds) at the time of each transaction. Neglecting to do this can result in inaccurate calculations.
3. Misclassifying Crypto Transactions: Misunderstanding whether a transaction is a capital gain or income can lead to errors. For example, staking rewards are treated as income, not capital gains. Ensure you classify each transaction correctly according to HMRC guidelines.
4. Ignoring Fees and Costs: Transaction fees and costs associated with buying or selling crypto can be deducted from your gains. Failing to account for these costs can result in an inflated taxable gain.
5. Inaccurate Record-Keeping: Failing to maintain accurate, detailed records of your crypto transactions can make tax reporting difficult and lead to errors.
6. Relying Only on Exchange Statements: Many crypto traders rely solely on exchange statements for their tax records. However, exchange data can be incomplete or inaccurate, leading to errors in your tax filing.
7. Not Using Capital Losses to Offset Gains: If you have incurred losses from selling cryptocurrency at a lower price than you bought it, you can use those losses to offset gains and reduce your tax liability. Some traders forget to claim these losses, leaving them to pay more tax than necessary.

Here are some effective strategies to help reduce your crypto tax liability in the UK:

1. Use Your Capital Gains Tax Allowance: Each year, you can earn up to £3,000 in capital gains tax-free. This means you can make up to £3,000 in profits from selling crypto without paying tax. Make sure to use this allowance each year to reduce your taxable gains.
2. Offset Losses Against Gains: If you've incurred losses from selling cryptocurrency, you can offset these losses against any gains you've made. This reduces the overall amount of capital gains you’re liable to pay tax on. Make sure to report all losses to HMRC.
3. Hold Crypto for the Long Term: If you plan to invest in crypto long-term, holding onto your assets for a long term can help you manage your tax liability. You can time the sale of your crypto to fall into a tax year where you expect to have lower gains or income.
4. Gifting Cryptocurrency: You can transfer cryptocurrency to your spouse or civil partner tax-free. This allows you to split your gains and make use of both your capital gains allowances, effectively doubling the tax-free threshold.
5. Claim Deductible Expenses: Deduct any transaction fees, acquisition costs, and professional services related to your crypto activities. These expenses reduce your taxable gains and are important to track for accurate reporting.
6. Invest in ISAs: While you can't hold crypto directly in an Individual Savings Account (ISA), you can use your tax-free ISA allowance to invest in assets like stocks and shares, which may include crypto-related companies. This approach helps diversify your portfolio while you enjoy tax-free growth.

Need Help with Your Crypto Taxes?

Crypto tax can be complicated, and even small mistakes can lead to big issues with HMRC. To make sure you’re handling your crypto taxes correctly, consult with professional crypto accountants. GoForma offers expert advice to help you manage the crypto taxation. Whether you’re a casual investor or a full-time crypto trader, GoForma has the expertise to ensure your taxes are managed correctly and efficiently. Book a free consultation today for personalised crypto tax advice!