The UK is one of Europe’s biggest crypto hubs, with $170 billion in crypto deals now in place. Crypto is becoming more and more popular, but Whether you’re a casual HODLer or a passionate crypto enthusiast, the topic of crypto taxes in the UK can be quite complex.
Welcome to our 2023 UK crypto tax guide, where we will provide essential insights into how the UK tax authorities view cryptocurrencies, and help you navigate the intricacies of the HMRC Cryptoassets Manual.
From the fundamental such as do you have to pay tax on crypto? What are the types of crypto taxes in the UK? and How does UK crypto tax actually work? What is the process of crypto tax returns? We’ve got it all covered.
In this ultimate crypto tax UK guide, we’ve also included a handy crypto tax calculator tool CoinLedger that assists you in generating an HMRC-compliant crypto tax report.
Table of Contents
Do You Have to Pay Tax on Crypto in the UK?
Yes, cryptocurrency is indeed subject to taxation in the United Kingdom. HMRC (HM Revenue and Customs) has made it explicit that the taxation of cryptocurrency hinges on the specific nature of the transaction involved.
Despite being a relatively new form of asset with an evolving regulatory landscape, it’s essential to emphasize that cryptocurrencies are not exempt from taxation in the UK.
Crypto assets or cryptocurrencies (such as exchange tokens, utility tokens, and security tokens), are not classified as official currency or money by HMRC. However, their tax treatment depends on how they are utilized.
For instance, Bitcoin serves as a medium of exchange and payment (just like most cryptocurrencies). Consequently, if you hold cryptocurrency, including Bitcoin, as a personal investment and realize a profit from its sale, it’s crucial to understand that you are obligated to pay Capital Gains Tax on crypto gains.
Moreover, if you acquire cryptos through activities such as mining, salary paid in cryptos, or compensation for services, also known as crypto earnings are subjected to Income Tax in the UK.
Categorisation of Cryptos By HMRC (for Taxes)
According to HMRC, cryptocurrencies, referred to as ‘cryptoassets’ or ‘tokens,’ are digital assets secured using cryptographic techniques, enabling electronic transfer, storage, and trading.
There are 4 distinct categories of crypto assets (as per HMRC):
- Exchange Tokens: Tokens (like Bitcoin) that are used for transactions but are also sought as investments due to their potential value appreciation.
- Stablecoins: tokens (like Tether and USD Coin) that are designed for price stability, maintaining a fixed value by pegging to assets like fiat currencies (e.g., US dollars) or precious metals (e.g., gold).
- Utility Tokens: These tokens provide entry or add functionality to specific goods or services on certain platforms, which can also be used for payment and trading.
- Security Tokens: These digital holdings represent fractional ownership, repayment commitments, or future profit claims in a business.
It is important to understand these classifications, as they can influence the tax treatment of your cryptos. Different categories may be subject to distinct tax regulations, making it crucial to identify and navigate the UK crypto tax landscape effectively.
What is the Tax Rate on Crypto in the UK?
The crypto tax in the UK depends on whether they are subject to Capital Gains Tax or Income Tax, determined by the nature of your crypto transactions.
On capital gains, the applicable tax rate will be either 10% or 20% (on the amount over the crypto tax-free allowance).
On crypto income the standard UK income tax rates are applied, which may range from 0% to 45% – depending on your income tax bracket. There are no taxes up to £12,570 (also known as personal allowance bracket).
We will explain both Capital Gains Tax or Income Tax in great details below.
What are Tax-Free Crypto Transactions in the UK?
Not all crypto-related activities or transactions are subject to crypto tax in the UK. Here are some tax-free crypto transactions:
- Buying cryptos using GBP.
- Holding onto your cryptocurrency (HODLing).
- Transferring cryptocurrency between your own wallets.
- Donating cryptocurrency to charitable causes.
- Gifting cryptocurrency to your spouse – This can be advantageous if your partner has not utilized their capital gains allowance for the year!
How Are Cryptos Taxed In The UK?
In the UK, there isn’t a specific “crypto tax” or “Bitcoin tax”. The crypto tax in the UK depends on whether they are subject to Capital Gains Tax or Income Tax, determined by the nature of your crypto transactions.
- If you’re generating income from your crypto-realted activities, standard Income Tax applies.
- If you make money from capital gains (for example profits from selling cryptos), Capital Gains Tax comes into play.
Lets dive into both the scenarios.
Crypto Capital Gains Tax UK
As per HMRC, the Cryptocurrencies (or Crypto Assets) are “capital assets”, which means Capital Gains Tax is applicable when you dispose of these assets.
Disposal of cryptocurrencies may include:
- Selling cryptocurrency for GBP or another fiat currency.
- Exchanging cryptocurrency for another cryptocurrency, including stablecoins.
- Using cryptocurrency to make purchases of goods and services.
- Gifting cryptocurrency, with an exception for transfers to your spouse or civil partner.
Whenever you engage in such activities involving crypto in the UK, Capital Gains Tax will be levied, but it’s important to note that you’re only taxed on the gains you’ve made, not the entire proceeds.
Crypto tax-free allowance on capital gains in the UK
In the UK, the Capital Gains Tax-Free Allowance for the tax year 2023/24 us £6,000 allowing individuals to make gains from selling cryptos up to this amount without paying crypto taxes (Capital Gains Tax).
From April 2024 (tax year 2024/25), the Capital Gains Tax-Free Allowance has been reduced to £3,000 for individuals and personal representatives. However, this may change in the future.As of April 2023, as cited in the Autumn Treasury Statement
Crypto Capital Gains Tax rates UK
UK does not differentiate between short-term and long-term Capital Gains Tax rates; instead, all capital gains are subject to uniform rates.
The specific amount of Capital Gains Tax owed is contingent upon your total earnings:
|Tax rate||Taxable income|
|10%||Basic Rate Income Band (up to £50,270)|
|20%||Higher Rate Income Band (up to £150,000)|
|20%||Additional Rate Income Band (more than £150,000)|
Broadly speaking, your crypto gains will be subject to either a 10% or 20% tax rate, determined by the income bracket you belong to:
- If your total income is less than £50,270, you’ll incur a 10% tax on your crypto gains.
- If your total income exceeds £50,270, a 20% tax rate applies to your crypto gains.
Crypto Income Tax in the UK
In the United Kingdom, Income Tax related to cryptocurrency can fall into distinct categories depending on the scenario (such as getting paid in crypto or earnings from crypto staking earning and mining), thus making it liable for Income Tax.
These type of “crypto income” are taxed according to the standard UK income tax bracket.
In the UK, cryptocurrency is considered income in the following scenarios:
- Receiving payment in cryptocurrency (such as salary or freelance payments)
- Earning rewards through staking.
- Earnings from cryptocurrency mining.
- Receiving airdrops, although exceptions may apply.
When it comes to crypto income, there are three distinct categories to consider:
Cryptocurrency as Employment Income: When cryptocurrency is received as part of your employment, it is treated similarly to a salary. Employers are responsible for determining its value in pounds at the time of issuance, and this amount is subject to Income Tax and National Insurance contributions.
Cryptocurrency as Self-Employment Income: Self-employed individuals who receive cryptocurrency for services or business activities must report this income as part of their self-employment earnings. Maintain a record of all transactions, along with their pound values at the time of receipt, should be maintained.
When filing the Self Assessment tax return, this self-employment income should be included. Business-related expenses may be deductible.
Cryptocurrency as Miscellaneous Income: Cryptocurrency can also fall under the category of miscellaneous income, covering earnings from non-traditional sources like crypto mining or airdrops. This income must be reported on a self-assessment tax return, and standard income tax is applicable.
It’s essential to maintain records of all crypto transactions, including their market value in pounds at the time of receipt. To file your taxes accurately, you’ll need to have a record of all your crypto-related transactions precisely.
However, it is quite challenging to maintain transaction records for the entire year. This is why it is recommended to use Crypto Tax software like CoinLedger which simplifies transaction tracking and tax reporting. The software automates the entire crypto tax preparation process. Users can import their transaction data by syncing supported wallets or using the CoinLedger API to link with cryptocurrency exchanges.
Income tax rates on crypto income
Crypto income tax in the UK aligns with the standard UK Income Tax bands for your regular earnings.
Here are the Income tax rates that you will pay for your crypto income:
|Tax rate||Taxable income||Band|
|0%||Up to £12,570||Personal allowance|
|20%||£12,571 – £50,270||Basic rate|
|40%||£50,271 – £150,000||Higher rate|
Taxpayers earning more than £125,000 a year do not receive the £12,570 personal allowance and those earning more than £100,000 a year receive a reduced personal allowance.
DeFi Taxes in the UK
HMRC has recently provided guidance on decentralized finance (DeFi) transactions, particularly regarding lending and staking. According to this guidance, DeFi transactions may be subject to either Income Tax or Capital Gains Tax, depending on the “nature of the transaction” and whether it exhibits characteristics of income or capital. If your DeFi activities are deemed to have the ‘nature of income,’ they will be subject to Income Tax.
UK Capital Gain Tax Scenraios in DeFi
In essence, a capital transaction arises when you dispose of your crypto, regardless of your ability to reclaim it. This could encompass actions like:
- Providing or withdrawing your crypto from a liquidity pool, where the DeFi protocol benefits from your liquidity.
- Staking your crypto through a DeFi protocol, though returns from staking might be subject to Income Tax
Income Tax Scenraios in DeFi
Typically, Income Tax applies to ‘returns’ from activities. This means that rewards from staking, yield farming, lending, and similar activities could be regarded as income and thus subject to Income Tax.
HMRC suggests that it’s likely to be considered income if:
- The return has been pre-agreed upon, rather than being speculative or uncertain.
- The return is paid by the borrower or the DeFi platform.
- The return is disbursed periodically during the lending or staking period.
Consequently, if you are earning new coins or tokens, especially at a pre-agreed annual percentage yield (APY) through a DeFi protocol, it’s probable that this will be viewed as income.
This encompasses activities such as:
- Earning new crypto tokens through yield farming on lending platforms like AAVE or Compound.
- Receiving new liquidity pool tokens, governance tokens, or reward tokens.
Who Gets Taxed on Crypto in the UK?
Here’s a list of people liable for crypto taxes in the UK:
Traders owe capital gains tax on their profits. The first £6,000 of profits made per year are not subject to any tax. After this £6,000 range, you’ll pay either 10% or 20% tax on profits, depending on what income tax bracket you fall into as well as the transactions you’ve made.
Earning from crypto mining is censored as a “crypto earning” is taxed in the same way as crypto trading, as shown above. The proceeds of professional crypto mining are subject to capital gains tax.
Employees receiving a crypto salary
When employees receive their salary in cryptocurrency, it means they are being compensated for their work in digital assets, such as Bitcoin or stable coins like Tether (USDT), rather than traditional fiat currency like the US dollar or British pound.
If you’re running a crypto business, all the regular taxes apply whether you’re dealing in crypto or fiat, and your crypto is subject to capital gains tax when sold for a profit.
Heirs to crypto assets
If you’ve inherited crypto from someone’s estate, you’ll owe inheritance tax on sums above £325,000. A £500,000 inheritance would be taxed £70,000 (40% of £175,000).
When and How to Pay Crypto Tax UK?
Keep a record of all your crypto transactions (use one of the software solutions we recommend later in the article if you need to). Your taxes are due on January 31st — calculate the tax early to prepare for your bill on time.
What Constitutes a Taxable Crypto Event in the UK?
When you sell crypto, whether it’s for fiat or another crypto, you’re creating a potentially taxable event. This is also the case for earning crypto in the scenarios mentioned in the previous section. It’s important to be aware that when you sell crypto for a loss, you may be able to deduct this loss from your final tax bill.
Can HMRC Track My Crypto Activities?
Yes, HMRC possesses the means to track cryptocurrency transactions effectively:
Data Sharing: HMRC has established a comprehensive data-sharing initiative with all the cryptocurrency exchanges in the UK.
Historical Transaction Records: HMRC also maintains extensive records of cryptocurrency transactions dating back to as early as 2014.
KYC Records: HMRC has access to customers’ data (KYC data) on centralised crypto exchanges and crypto wallets in the UK.
Moreover, HMRC initiated collaboration with prominent cryptocurrency exchanges to facilitate the exchange of customer information derived from Know Your Customer (KYC) identification records. This data serves as the basis for HMRC’s outreach efforts, including ‘nudge letters,’ aimed at reminding crypto investors of their responsibility to report their cryptocurrency holdings and fulfil their tax obligations.
Starting in January 2022, Coinbase proactively informed customers holding cryptocurrency assets exceeding £3,000 about the sharing of account details with HMRC. Subsequently, in March 2023, Coinbase expanded this practice to include UK customers who had received fiat currency payments exceeding £5,000, adhering to the mandates of the Finance Act.
Crypto Tax Software for the UK
Crypto taxes are complex enough that it can be worth using accounting software, especially for traders who need to keep track of a high volume of transactions. Therefore it is important to use dedicated crypto tax tools like CoinLedger to help you calculate your UK crypto taxes accurately.
CoinLedger is user-friendly crypto tax software that simplifies transaction tracking and tax reporting. The software automates the entire crypto tax preparation process. Users can import their transaction data by syncing supported wallets or using the CoinLedger API to link with cryptocurrency exchanges.
Once the transaction data is imported, CoinLedger presents a consolidated view on a dashboard. This dashboard provides insights into users’ portfolios, including trading history, gains and losses, and income from activities like staking and liquidity mining. It also supports tracking NFT transactions and calculating NFT taxes.
Spending Crypto in the UK
Crypto is getting easier and easier to use, with crypto tax software, multiple exchanges to choose from, and platforms like CryptoWallet.com that not only sell crypto but let you spend it as well!
We’re launching a crypto card in 2023 that allows you to spend over 800 cryptos directly with no conversion required. Sign up to the whitelist here!