Are Crypto Gains Taxed in the UK?

It's common knowledge that financial regulators are pushing hard for the regulation of cryptocurrencies. And it's no surprise that one question on the minds of crypto investors is, "Are crypto gains taxed in the UK?".

In this article, we explain all you need to know about getting taxed on your crypto in the UK. Let's dive in and answer ‘when are crypto gains taxed?’.

Are crypto gains taxed in the UK?

Yes, crypto gains are taxed for most crypto investors in the UK. In the eyes of HMRC, your crypto assets are not considered to be currency or money, nor does it consider crypto trading to be gambling as in some forms of forex trading. However, it considers crypto as tokens and classifies it under the capital asset (like shares) or property class. And this makes them liable for capital gains or income tax depending on their disposal (more on this in a moment).

If you get paid in crypto for work or business activities, you’ll be taxed an income tax. But if you use it as a form of personal investment, the capital gains tax law applies.

HMRC further defines disposal as:

• Exchanging crypto for other cryptos/tokens.

• Mining crypto.

• Trading it for financial gain.

• Gifting tokens to someone who’s not your spouse or civil partner.

• Paying for goods and services.

When your questions is 'are crypto gains taxed in the UK', keep in mind that this rule doesn’t apply to all crypto investments. You can avoid paying crypto tax in the UK when you:

• Buy crypto using fiat pound sterling.

• Transfer crypto between wallets you own.

• HODL crypto.

• Donate crypto to charity.

• Gift crypto to your spouse.

• Earn less than £1,000 in crypto income.

• Invest your crypto into a pension scheme.

You are only liable to pay crypto tax in certain scenarios, which include paying:

• Capital gains tax when you make a profit of more than £12,300 for selling, exchanging, gifting, or spending your crypto.

• Income tax if you earn more than £12,300 in income.

To put these into context, let’s dive deeper into the scenarios where you’ll have to pay crypto tax in the UK.

When will you pay tax on crypto gains?

When are crypto gains taxed? The UK crypto tax law applies when you earn an income or capital gain in crypto. The scenarios of income and capital gain are explained thus:

Paying capital gains tax on your crypto

Trade crypto

You’ll pay capital gains tax when you sell your crypto and make a profit. The rule only holds for the profit made.

Swap crypto

Swapping/exchanging crypto assests will incur capital gains tax as you'll be selling to other crypto investors or a liquidity pool.

Gifting crypto to people other than your spouse

HMRC requires you to pay capital gains on the profit you made between buying crypto and before gifting it. This tax rule doesn't apply when gifting crypto to your spouse or civil partner.

Paying for goods and services

Spending crypto on goods and services attracts capital gains tax on the profit you made before spending it.

Paying income tax on your crypto

When you get paid in crypto

"But crypto payment isn't cash payment, at least in the eyes of HMRC. So why's it taxed?" Well, HMRC considers it an income, so income tax and national insurance contributions apply. And should you receive airdrops and dispose of the tokens, you'll pay income tax.

Mine crypto

The crypto income tax also applies when you verify transactions on the blockchain and earn rewards. Also, if you dispose of the cryptocurrencies at any point, you'll be taxed. However, you won't be taxed if you declare mining as a hobby.

Inherit crypto

As earlier stated, crypto assets are classed as property in the UK. Hence, you'll be required to pay inheritance tax if the value is worth more than £325,000. So if you inherit £425,000 worth of crypto assets, you'll be taxed on the £100,000.

Stake crypto

The rewards you earn from staking your crypto are considered miscellaneous income by HMRC, so it's taxed.

How much will I be taxed?

Since not all of your crypto is liable for taxation, find out the ones that can be taxed and write them down. When calculating your capital gains tax, first calculate the cost basis for each transaction – the amount paid for the crypto and the transaction fees. For example, if you bought 1 ETH for £15,000 and paid £50 in transaction fees, your cost basis will be £15,050.

Then work out the value of your crypto at the time you disposed of it and deduct your cost basis. So if you sold your ETH at £17,000, you'd have made a capital gain (profit) of £1,950. You can then pay your tax based on the applicable income tax band.

Capital gains tax rate and Income tax band

10% Basic rate (up to £50,270)

20% Higher rate (up to £150,000)

20% Additional rate (over £150,000)

As we established earlier, £12,300 of your capital gain is tax-free. So if you earn £20,000 in crypto profit, deduct the tax-free allowance from it, leaving you with £6,700, which you’ll pay 10% tax.

For calculating your income tax, first, work out the Fair Market Value (FMV) of your crypto income – this is the value in pounds at the time you received it. Thereafter, add it to your other earnings and pay the tax required for your taxpayer band. Better still, calculate the amount using the HMRC pay calculator.

Let’s assume you earn £12,570 from your day job and £3,500 freelancing and getting paid in crypto, you’ll pay 20% on your £16,070 income.

You can learn more about crypto tax compliance in HMRC’s Cryptoassets Manual.

How does HMRC know about my crypto transactions?

HMRC has a data-sharing arrangement with UK exchanges where they get customer information. Also, they have your KYC records when you signed up for a wallet or UK exchange.

How do I pay crypto tax?

You’ll have to declare your crypto profit to HMRC in your Self Assessment tax return. To do this, you must keep an accurate record of your earnings.

Follow these steps:

1. Register for Self Assessment tax return by 5 October.

2. Keep a detailed record of your crypto transactions and declare the following:

   2.1. Type of tokens

   2.2 Date you disposed of them

   2.3 Number of tokens disposed, the remainder, and their value in pounds

   2.4 Cost of the tokens before and after disposing of them

   2.5 Wallet addresses

   2.6 Bank statements

3. Calculate the tax payable and prepare the bill.

4. Pay the tax by 31 January.