Navigating cryptocurrency taxation in the United Kingdom can feel overwhelming, especially with evolving regulations and complex reporting requirements. This comprehensive guide breaks down how cryptoassets are treated under UK tax law, helping you understand your obligations and optimise your tax position in 2025 and beyond.
Produced with insights from cryptocurrency tax attorneys and blockchain-certified accountants, this resource aligns with the latest guidance from His Majesty’s Revenue and Customs (HMRC)—particularly the official Cryptoassets Manual, published in March 2021. Whether you're trading, mining, staking, or receiving crypto as income, this article clarifies what’s taxable, how gains are calculated, and how to stay compliant.
How Does HMRC Classify Cryptocurrency?
HMRC defines cryptoassets as “cryptographically secured digital representations of value or contractual rights that can be transferred, stored, and/or traded electronically.” This broad definition covers both fungible tokens like Bitcoin and Ethereum, as well as non-fungible tokens (NFTs).
Importantly, HMRC does not treat crypto as currency. Instead, cryptoassets are considered personal assets for tax purposes. This means they are subject to either Capital Gains Tax (CGT) or Income Tax, depending on the nature of the transaction—not the type of token itself.
👉 Discover how to track your crypto transactions for accurate tax reporting.
How Is Cryptocurrency Taxed in the UK?
The UK tax system applies two primary frameworks to crypto: Capital Gains Tax and Income Tax. Your classification depends on whether the activity is investment-based or income-generating.
Capital Gains Tax (CGT)
If you hold crypto as an investment, any disposal—such as selling, swapping, or spending—is a taxable event potentially triggering CGT.
Taxable disposals include:
- Selling crypto for fiat (e.g., GBP)
- Exchanging one cryptocurrency for another
- Using crypto to purchase goods or services
- Gifting crypto to someone who isn't your spouse or civil partner
Each time you dispose of crypto, you must calculate whether you’ve made a gain or loss. Only gains exceeding the annual tax-free allowance are taxable.
For the 2025 tax year (ending 5 April 2025), the annual capital gains tax-free allowance is £6,000. This is down from £12,300 in previous years due to recent government adjustments.
You must report all disposals—regardless of gain or loss—on Form SA108, part of your Self Assessment tax return.
Income Tax
Crypto received as payment for services or through yield-generating activities is treated as income and taxed accordingly. This includes:
- Salary paid in crypto
- Mining rewards
- Staking rewards
- Airdrops received in exchange for a service (e.g., social media promotion)
Such income must be declared on Box 17 of Form SA100 as miscellaneous income. The pound sterling value at the time of receipt determines both your taxable income and the cost basis for future capital gains calculations.
Note: In rare cases where crypto activity resembles a business or trade—such as frequent day trading with high organisation—HMRC may classify it as a financial trade. In these instances, Income Tax takes precedence over CGT.
Are All Crypto Transactions Taxable?
No. Not every action triggers a tax liability. The following are non-taxable events:
- Buying crypto with fiat currency (e.g., GBP)
- Transferring crypto between wallets you own
- Gifting crypto to your spouse or civil partner
- Donating crypto to a registered UK charity
These activities do not count as disposals and therefore don’t require reporting for CGT purposes.
What Crypto Transactions Are Taxable?
Taxable events include:
- Selling crypto for cash
- Trading one crypto for another
- Paying for goods or services with crypto
- Gifting crypto to non-spouses
- Earning rewards via mining, staking, or airdrops
- Receiving crypto as payment for work
Each disposal must be recorded with:
- Date of transaction
- Type and amount of crypto involved
- GBP value at time of disposal
- Cost basis using HMRC’s share pooling rules
Failure to report can lead to penalties—even if no tax is owed.
👉 Learn how automated tools can simplify your UK crypto tax reporting.
How to Calculate Capital Gains and Losses
The formula for calculating gain or loss is simple:
Proceeds from Disposal – Cost Basis = Gain or (Loss)
However, determining the cost basis in the UK involves a unique method called share pooling, which applies only to fungible tokens (not NFTs).
HMRC’s Share Pooling Rules (Apply in Order)
- Same Day Rule
Match disposals with purchases of the same token made on the same day. - 30-Day (Bed and Breakfast) Rule
If you re-buy the same token within 30 days of selling, the sale is matched with the earliest of those repurchased tokens. - Section 104 Pool
All remaining tokens are grouped into a single pool. The cost basis is the average cost of all tokens in the pool.
Example:
You buy 1 BTC for £10,000 and pay £200 in exchange fees (an allowable cost). Your total cost basis becomes £10,200.
Later, you sell 1 BTC for £11,000 and pay £200 in gas fees (also allowable).
Your gain calculation:
- Proceeds: £11,000
- Less: Cost basis (£10,200) + Disposal fee (£200) = £10,400
- Taxable Gain: £600
What Are Allowable Costs?
HMRC allows certain expenses to be included in your cost basis or deducted from proceeds:
✅ Include when buying:
- Purchase price
- Transaction fees (e.g., gas)
- Exchange fees
- Legal or professional fees related to acquisition
✅ Deduct when selling:
- Disposal fees (e.g., network fees)
- Valuation costs for reporting
These reduce your taxable gain or increase your allowable loss.
Can You Offset Gains with Losses?
Yes. You can use capital losses to reduce your capital gains in the same tax year.
For example:
- Total gains: £15,000
- Total losses: (£4,000)
- Net gain: £11,000
After applying the £6,000 tax-free allowance:
Taxable gain = £5,000
Any unused losses can be carried forward indefinitely to offset future gains—but only if reported to HMRC on Form SA108.
What Is Tax Loss Carry Forward?
If your capital losses exceed gains in a year, you can carry forward the excess to future years. For example:
- Year 1: Net loss of (£7,000) → Carry forward entire amount
- Year 2: Gain of £9,000 → Offset with £7,000 → Taxable gain: £2,000 (after £6k allowance: £0)
This strategy helps manage volatility in crypto markets.
How Are Mining, Staking & Airdrops Taxed?
Mining & Staking
Rewards are taxed as miscellaneous income at their GBP value when received. This amount becomes the cost basis when later sold.
Example: You receive 2 ETH via staking when ETH is worth £1,800 each → Report £3,600 as income. If later sold for £4,500 total → CGT applies to £900 gain.
Airdrops
- Earned airdrops (e.g., completing tasks): Taxable as income
- Unearned airdrops (e.g., random distribution): Not taxed at receipt; cost basis = £0
Both types enter your Section 104 pool upon receipt.
What Are the Current Crypto Tax Rates?
Your rate depends on your total income and whether the gain is from income or capital gains.
| Income Band | Income Tax Rate | Capital Gains Tax Rate |
|---|---|---|
| Personal Allowance (≤£12,570) | 0% | 0% |
| Basic Rate (£12,571–£50,270) | 20% | 10% |
| Higher Rate (£50,271–£125,140) | 40% | 20% |
| Additional Rate (>£125,140) | 45% | 20% |
Higher and additional rate taxpayers pay 20% on capital gains from crypto.
Frequently Asked Questions (FAQ)
❓ Do I need to report every crypto transaction?
Yes. HMRC requires reporting of all disposals—even if no gain is made or below the allowance. Use Form SA108 within your Self Assessment.
❓ How do I handle NFT taxes?
NFTs are treated as unique assets (non-fungible), so share pooling doesn’t apply. Each NFT’s cost basis is tracked individually. Disposals trigger CGT based on individual purchase and sale prices.
❓ Can I avoid tax by holding crypto long-term?
Holding longer doesn’t reduce CGT rates in the UK. However, spreading disposals across tax years can help utilise annual allowances more efficiently.
❓ What records should I keep?
Keep detailed records for at least six years:
- Transaction dates
- Crypto types and amounts
- GBP values at time of transaction
- Wallet addresses
- Purpose of transaction
- Receipts for fees
❓ Is DeFi lending taxable?
Yes. Interest earned from DeFi protocols is treated as income and must be reported at fair market value when received.
❓ What happens if I don’t report crypto taxes?
HMRC has increased data-sharing with exchanges. Unreported gains may result in penalties up to 100% of tax owed—and more if deemed deliberate.
👉 Stay ahead of compliance with real-time portfolio tracking tools.
By understanding HMRC’s approach to crypto taxation—including share pooling, allowable costs, and income vs. capital distinctions—you can ensure accuracy in reporting while minimising unnecessary tax burdens. As the UK continues to shape its regulatory framework around digital assets, staying informed is key to responsible ownership and long-term success.