Whether you are new to cryptocurrency or a seasoned veteran, it’s crucial to understand how HMRC taxes crypto assets such as cryptocurrency or bitcoin. Please continue reading to discover everything you need to know about UK cryptocurrency taxes in our comprehensive guide.
HMRC Cryptocurrency guide
HMRC has published guidance for people holding crypto assets that you can view here. The online manual explains the taxes you may need to pay and the records you must keep. HMRC has also published information for companies and businesses about the tax treatment of crypto asset transactions. Please be aware that HMRC’s tax policy may evolve as the sector develops.
When is crypto subject to Capital Gains tax?
As crypto is classed as an asset in the UK, when you swap, sell or spend it, this is seen as a disposal of an asset and subject to capital gains tax.
Not all of your disposed assets will be subject to capital gains tax, and it will only be due on the profit gained from disposing of it. For example:
- Profits from swapping crypto with crypto
- Profits from selling crypto for fiat currency, e.g., GBP
- Using cryptocurrency to purchase services and goods
- Perceived gains made from gifting crypto (excluding to a spouse)
How much Capital Gains tax will you pay?
Everyone in the UK has an annual capital gain tax-free allowance of £6,000 for the 2023/24 tax year. If your crypto gains equate to less than £6,000, you will not be required to pay any capital gains tax, and you do not need to report this to HMRC.
The amount of capital gains tax you’ll pay will depend on the income tax band you fall into.
If you make a gain after selling a property, you’ll pay 18% capital gains tax (CGT) as a basic-rate taxpayer, or 28% if you pay a higher rate of tax. Gains from selling other assets are charged at 10% for basic-rate taxpayers, and 20% for higher-rate taxpayers.
You’ll only need to pay these rates on the gains that exceed your capital gains allowance.
When is crypto taxed as income?
HMRC is very clear on when crypto is considered income, and individual investors will be required to pay income tax and National Insurance Contributions (NICs) in the following areas.
Getting paid in Bitcoin or Altcoins
Any crypto received as employment income is considered money’s worth. Money’s worth is when something is of direct monetary value to the employee or something that can be converted into money.
If you receive all or part of your salary/freelance income in cryptocurrency instead of fiat currency, you will have to pay income tax and NICs based on the value of the crypto on the date of receipt. Please be aware; the rules are different depending on whether the crypto asset you receive is a Readily Convertible Asset (RCA) or not.
Disposal of crypto assets that are received as employment income is subject to capital gains tax.
Mining
Mining cryptocurrency can either be considered a fully-fledged business or a hobby. How it is classed will depend on several factors:
- Organisation
- Risk
- Degree of activity
- Commerciality
Mining as a business
If your mining activity is classed as a business, then the mining income will be added to trading profits and be subject to income tax deductions.
When you dispose of this cryptocurrency, any gain in value from the acquisition time will be added to your trading profits, and this transaction may be subject to NICs.
Mining as a hobby
If your mining activity is classed as a hobby, any income from mining has to be declared under miscellaneous income on your tax return. The income, in this instance, will be the fair market value of the crypto at the time you receive it. Rewards or fees received in exchange for mining activity will also be added to your taxable income.
You may be able to deduct reasonable expenses from this income before adding it to the taxable income. Please be aware that it will be subject to capital gains tax when you dispose of this crypto.
Staking
HMRC states that the GBP value of any tokens awarded at the time of receipt will be taxable as income (miscellaneous income) with any reasonable expenses reducing the chargeable amount.
You may want to treat this as savings income and claim your personal savings allowance to reduce any taxes due further. We recommend speaking with a tax accountant if you are considering this.
Please be aware that capital gains tax rules may apply if you dispose of it at a later date.
Airdrops
Income tax will not apply to the airdropped crypto provided:
- They aren’t accepted as part of a trade or business involving crypto
- They’re received without doing anything in exchange
If airdrops are provided in return for a service, they will be subject to income tax and classed as either trading profits (if you are a business) or miscellaneous income.
If a crypto business or trader receives the airdrop, any increase in valuation will be added to the trading profits and be subject to income tax, as well as NICs. If an individual receives the airdrop, it will be subject to capital gains tax at the time of disposal.
How much Income Tax will you pay?
How much income tax you will pay will depend on the income tax band you fall into. For the 2023/24 tax year, the following rates apply.
| Band | Taxable income | Tax rate |
| Personal allowance | Up to £12,570 | 0% |
| Basic rate | £12,571 – £50,270 | 20% |
| Higher rate | £50,271 – £125,140 | 40% |
| Additional rate | £125,140 + | 45% |
Are any crypto transactions exempt from tax in the UK?
Yes, some crypto transactions are not subject to capital gains tax or income tax in the UK. These include:
- HODLing crypto
- Transferring crypto between your own wallets
- Buying crypto with fiat currency, e.g., GBP
- Gifting crypto to a spouse
HMRC’S Cryptocurrency nudge letters
HMRC has issued nudge letters to holders of crypto assets, such as BitCoin, to remind taxpayers of their responsibilities to report income or gains through a self-assessment tax return. It also serves as a reminder to register for self-assessment and to notify them that they have transactions to report.
How does HMRC know you hold crypto assets?
HMRC have been seeking data from crypto exchanges for years. It was reported back in August 2019 that crypto exchanges that have business in the UK, such as eToro, Coinbase and CEX.IO, received letters from HRMC requesting customer data and transaction history.
HMRC has confirmed to The Block that it has sought customer information from Coinbase U.K alongside other crypto platforms. “We want to help people get their tax affairs right and believe taxpayers want to get it right […]. HMRC regularly gathers data from various information sources using powers provided by parliament. Data collected by HMRC is used to improve the integrity of the tax system and to identify those that have failed to declare their gains.”
HMRC cost basis methods
HMRC has precise guidance for crypto cost basis methods, known as share pooling. This stops crypto investors from manipulating the ACB cost basis method by selling their holdings at a loss to reduce taxes and repurchasing them shortly after.
There are three possible cost basis methods you can use, and you need to work through them as they apply to your assets.
- Same-Day Rule: If you buy and sell coins on the same day, you should use the cost basis on this day to calculate your gains or losses. If you are selling more coins than you bought on that day, please move on to the following rule.
- Bed and Breakfast Rule: If you buy coins/tokens and sell the same coins/tokens you purchased 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 purchased within this month, please move on to the third rule.
- Section 104 Rule: If the two rules above don’t apply to 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.
Reporting Capital Gains and Losses on your Personal Tax Return
It is important your report your capital gains and losses on your tax return. Losses can be used in two ways. The first is by offsetting any losses against any gains realised in the same tax year, reducing your potential tax bill. You can also use your losses to reduce your tax bill by carrying them forward and offsetting them against future gains.
When should you submit a Tax Return for your UK Cryptocurrency Taxes?
If you’ve bought or sold cryptocurrency between the UK tax year of the 6th April 2022 and the 5th April 2023, you will need to submit a self-assessment tax return by the 31st January 2024.
You’ll need to keep detailed records throughout the year of all of your crypto transactions and report any capital gains profits or losses, as well as any crypto earnings perceived as income to HMRC.
Once you have submitted your tax return, HMRC will calculate if you owe any tax. You will also need to pay any taxes due by midnight on the 31st January 2024, which is why it is advised you submit a tax return as early as possible.
Need help with the submission of your self-assessment tax return?
Fusion Business Services has a dedicated in-house Personal Tax Return Department that is on hand to help you with your self-assessment. To find out more information and to request a free consultation to discuss your personal tax affairs, please call 0800 2294020 or complete the form on this page.
