What exciting times we live in!
Get started in cryptocurrency is part and parcel of the new-age, but it comes with its own set of tax rules that can easily trip you up if you’re not prepared.
Many new investors don’t realise that even though there’s no specific ‘crypto tax’ in the UK, you still might owe taxes on any gains or earnings you make.
Whether you’re mining, staking, trading, or simply selling, understanding how crypto is taxed could save you from unexpected fines and penalties.
Don’t have time? Here’s the wrap-up of this article in less time it takes to eat a taco 🌮
▪ Income Tax on Crypto: You need to pay Income Tax if you receive crypto from trading, airdrops, staking, mining, or even if your employer pays you in cryptocurrency.
▪ Calculate Tax: Determine the crypto’s Fair Market Value (FMV) in GBP at the time of receipt to calculate how much tax you owe.
▪ Capital Gains Tax: Crypto is an asset in the UK. You might need to pay Capital Gains Tax (CGT) when you sell, gift, spend, or swap crypto if the profit exceeds the £3,000 annual allowance.
▪ Income Tax Threshold: You can earn up to £12,570 tax-free. After that, you pay tax according to your total yearly income.
▪ Capital Losses: If you make a loss, you can carry it forward to offset future gains for up to four years.
▪ Exemptions: Transferring crypto between your wallets, buying crypto with fiat currency, gifting to a spouse, or simply holding crypto are not subject to tax.
▪ Know Your Rates: CGT rates depend on your income tax bracket: 10% for basic rate taxpayers and 20% for higher-rate taxpayers.
▪ n.b. Stay Sharp, Stay Savvy and Keep Winning!
Skip right to…
- A Beginner’s Guide to Crypto Tax in the UK
- 1- Do I Need to Pay Income Tax on My Crypto Earnings?
- 2- How Much Income Tax Will I Pay on My Crypto?
- 3- How Do I Work Out My Crypto Tax?
- 3- Income Tax Brackets for England, Wales, and Northern Ireland
- 4- Do I Need to Pay Capital Gains Tax on My Crypto?
- 5- When Do I Pay Capital Gains Tax on Crypto?
- 6- How to Calculate Capital Gains Tax on Crypto
- 8- What If I Made a Loss on My Crypto?
- 9- When Are Crypto Transactions Not Taxed?
- Conclusion: Key Points for Crypto Taxes in the UK
A Beginner’s Guide to Crypto Tax in the UK
1- Do I Need to Pay Income Tax on My Crypto Earnings?
Remember when some people opted for receiving Bitcoin rather than pounds sterling for as their salary, and there were a bunch of us laughing at their naivete.
Well, how time flies by.
In any event, if you’re earning crypto in the UK, National Insurance and Income Tax apply just like any other income.
This rule covers situations where:
▪ Your Employer Pays You in Crypto: It’s treated as part of your salary, so standard income tax rules apply.
▪ Mining Crypto: If you receive cryptocurrency as a reward for mining, it’s considered taxable income.
▪ Trading Crypto: Though HMRC’s guidelines are unclear, if you regularly profit from trading crypto, you might owe Income Tax. Any gain made when converting crypto to GBP may also attract Capital Gains Tax.
▪ Receiving Airdrops: Airdropped crypto, if given in exchange for a service, can be seen as miscellaneous income.
▪ Staking Crypto: Any tokens received through staking are taxable under miscellaneous income rules.
2- How Much Income Tax Will I Pay on My Crypto?
In the UK, everyone gets a personal allowance of £12,570. You don’t pay Income Tax until your total income surpasses this threshold. If you exceed this limit (from your job, crypto, rent, or any other earnings), you’ll need to pay Income Tax according to your total taxable income.
3- How Do I Work Out My Crypto Tax?
To figure out how much tax you owe on your crypto, you first need to calculate its Fair Market Value (FMV) at the time you received it in GBP. Several crypto tax calculators are available online to help you determine FMV. Once you’ve converted the crypto into GBP, you can add it to your other income to understand which tax bracket you fall into.
3- Income Tax Brackets for England, Wales, and Northern Ireland
| 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 upwards | 45% |
4- Do I Need to Pay Capital Gains Tax on My Crypto?
Since crypto is classed as an asset in the UK, you may need to pay Capital Gains Tax (CGT) when you send, sell, gift, or swap crypto. This applies to the profit you make, not the income itself. Each UK taxpayer has an annual capital gains allowance of £3,000 for 2024/25, which means that you’re only liable for CGT if your total gains exceed this amount.
5- When Do I Pay Capital Gains Tax on Crypto?
Here are scenarios where you might owe CGT on your crypto:
1- Buying Goods/Services with Crypto: CGT applies to any profit made between acquiring the crypto and spending it.
2- Selling Crypto for GBP: If you sell crypto for pounds, you owe CGT on any profit.
3- Gifting Crypto: Giving away crypto (except to a spouse or civil partner) might incur CGT based on the gain made between acquiring and gifting it.
4- Swapping Crypto: Exchanging one type of crypto for another can result in a taxable gain.
6- How to Calculate Capital Gains Tax on Crypto
Follow these steps to figure out your CGT bill:
1- Calculate the Cost Basis: This includes what you paid for the crypto plus any fees. For example, if you bought 1 Bitcoin for £50,000 and paid £350 in fees, your cost basis is £50,350.
2- Work Out the Gain: If you sell that Bitcoin for £60,000, the gain is £60,000 – £50,350 = £9,650.
3- Subtract the Annual CGT Allowance: In 2024/25, the allowance is £3,000. So, £9,650 – £3,000 = £6,650. This is your taxable gain.
4- Determine Your CGT Rate: Based on your total income, you’ll pay either 10% (basic rate taxpayers) or 20% (higher-rate taxpayers).
In the example above, if you’re a higher-rate taxpayer, you’ll pay 20% on the £6,650 gain, resulting in a CGT bill of £1,330.
| Type of Taxpayer | Rate of CGT for Other Assets |
|---|---|
| Basic Rate Taxpayer | 10% |
| Higher Rate Taxpayer | 20% |
8- What If I Made a Loss on My Crypto?
You’re only taxed on profits, so if you’ve made a loss, there’s no tax to pay. Additionally, you can carry forward these losses to offset against future gains for up to four years from the end of the tax year they occurred.
9- When Are Crypto Transactions Not Taxed?
Certain transactions are exempt from tax, including:
▪ Transferring Crypto Between Your Own Wallets: Moving crypto between wallets you own doesn’t incur tax.
▪ Buying Crypto with Fiat: Purchasing crypto with fiat currencies (e.g., GBP or EUR) is not taxable.
▪ Gifting Crypto to a Spouse: Gifts to your spouse or civil partner are not subject to tax.
▪ Holding Crypto: Simply holding crypto without disposing of it does not trigger tax.
Conclusion: Key Points for Crypto Taxes in the UK
Income Tax: Crypto earnings from mining, staking, or trading may be subject to income tax.
Capital Gains Tax: Disposing of crypto (selling, gifting, swapping) could lead to CGT if the profit exceeds the annual allowance.
Calculate Fair Market Value: Always use the FMV in GBP at the time of receipt or disposal.
Exemptions: Transferring between personal wallets, buying with fiat, gifting to spouses, and holding crypto are not taxable events.
Capital Losses: Offset losses against future gains within four years.
Mastering these basics ensures you stay compliant while optimising your crypto investments for the best tax outcomes.
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