How HMRC Treats Cryptocurrency
HM Revenue & Customs (HMRC) treats cryptocurrency as property (a "cryptoasset"), not as currency. This classification determines how crypto is taxed — and it's more complex than many investors realise.
Every time you dispose of cryptocurrency, you may owe tax. A "disposal" includes selling crypto for fiat (GBP), swapping one crypto for another, spending crypto on goods or services, and gifting crypto (except to a spouse or civil partner). Simply holding crypto or transferring between your own wallets is NOT a taxable event.
Capital Gains Tax on Crypto
Most crypto investors will encounter Capital Gains Tax (CGT):
- CGT applies on the profit when you dispose of crypto
- The annual CGT allowance for 2025/26 is £3,000
- Gains above this are taxed at 10% (basic rate taxpayers) or 20% (higher/additional rate)
- Losses can be offset against gains to reduce your tax bill
- Unused losses can be carried forward indefinitely
Example: You bought 1 Bitcoin for £20,000 and sold it for £35,000. Your gain is £15,000. After the £3,000 CGT allowance, you owe tax on £12,000. At the higher rate (20%), that's £2,400 in tax.
Income Tax on Crypto
Some crypto activities are subject to Income Tax rather than CGT:
- Mining — If you mine cryptocurrency, the coins received are taxable income at their market value when received
- Staking rewards — Similar to mining, staking rewards are income when received
- Airdrops — If received in return for a service, treated as income. Unexpected airdrops may be treated differently.
- Employment income — If your employer pays you in crypto, it's subject to Income Tax and National Insurance
- DeFi lending interest — Interest received from DeFi lending is generally treated as income
Record-Keeping Requirements
HMRC requires you to keep records of every crypto transaction:
- Date of each transaction
- Type of crypto and amount
- Value in GBP at the time of the transaction
- Cumulative running totals of each crypto you hold
- Bank statements showing fiat deposits and withdrawals
- Records of any crypto received as income (mining, staking, airdrops)
Most exchanges provide transaction history downloads. Tools like Koinly, CryptoTaxCalculator, and Recap can automatically import data from multiple exchanges and wallets to generate tax reports.
Cost Basis Methods
HMRC requires specific methods for calculating your cost basis:
- Section 104 pooling — The default method. All purchases of the same crypto are pooled together, and the average cost is used for calculating gains. This is similar to share pooling.
- Same-day rule — If you buy and sell the same crypto on the same day, the cost of the purchase is matched to the sale (overrides pooling).
- Bed and breakfasting (30-day rule) — If you sell crypto and rebuy the same crypto within 30 days, the cost of the repurchase is matched to the sale. This prevents "wash sales" to crystallise losses.
How to Report Crypto Tax
UK taxpayers report crypto gains through Self Assessment:
- Register for Self Assessment if you haven't already
- Report crypto gains on the Capital Gains Tax section of your tax return
- The deadline for online filing is 31 January following the end of the tax year
- Consider using a crypto tax specialist accountant if your situation is complex
- HMRC has invested in data-sharing agreements with major exchanges — they know who is trading
