Do you pay tax on crypto in the UK?
Yes - cryptocurrency can be taxable in the UK. Whether you need to pay, and how much you need to pay, depends on how you are investing in crypto and the level of profit you have made.
Does HMRC know if you are holding cryptocurrency?
Yes - HMRC can know if you are holding cryptocurrency.
It is a common myth that the nature of cryptocurrency lets an individual hide their assets held. HMRC can, in fact, request information about customers of all UK exchanges.
For example, HMRC made requests from Coinbase on multiple occasions in 2021 and 2022. Data shared included identifying information for customers with holdings exceeding £3,000 and customers who withdrew more than £5,000 in 2019 or 2020.
What to do if you have undeclared crypto?
Because of the level of interest from HMRC in this area, and the ease with which HMRC is able to identify and prosecute individuals, we recommend getting clear on your tax position and making a voluntary disclosure to avoid possible penalties.
Later in this guide, we’ll point to exactly how to get clear on your tax position. If you’re interested in hearing how HMRC approaches individuals they suspect have undeclared earnings, listen to UK Barrister Patrick Bannon speak on the HMRC's approach to crypto tax investigations.
How is cryptocurrency taxed?
Cryptocurrency is subject to general UK tax principles. There is currently no new legislation specific to crypto assets, although HMRC has since March 2021 produced guidance on crypto assets.
Additionally, at the time of writing, there are no relevant cases that have been brought to a UK Tribunal to establish case law that would suggest any alternative treatment.
Let’s go into detail about what the general principles mean for crypto.
Capital gains tax on crypto transactions
In the UK, crypto is considered an asset for tax purposes, and whenever you dispose of an asset, the gain or loss you make may be subject to capital gains tax (after any available tax-free allowances).
There is an exception if you are considered a trader, in which case your gains and losses are treated as income, but be aware that HMRC will typically view an individual with crypto assets as an investor and not as a trader. From their guidance on what is trading for crypto assets:
“Only in exceptional circumstances would HMRC expect individuals to buy and sell exchange tokens with such frequency, level of organisation and sophistication that the activity amounts to a financial trade in itself.”
Events that can trigger capital gains are:
- Selling, trading, or spending crypto
- Gifting crypto (except to a spouse - take note, as this is great for tax planning)
- Staking via a DeFi protocol
- Removing crypto from a liquidity pool
How are capital gains taxed in the UK?
HMRC gives UK taxpayers a £12,300 capital gains allowance each year (due to fall to £6,000 in 2023/24 based on the Chancellor’s Autumn Statement), so you only pay tax on gains above this threshold. For investors with unrealised gains and losses, this allowance presents a significant tax planning opportunity.
Any gains that exceed the exemption will be taxed at the existing rates of 20% for higher and additional-rate taxpayers and 10% for basic-rate taxpayers.
Isn’t crypto treated as a currency?
Even though there are countries that have adopted cryptocurrencies as their official currency, HMRC does not view crypto as a currency for tax purposes. If crypto were considered money or a currency, then capital gains would be exempted.
HMRC maintain that crypto is an intangible asset and, therefore, gains on that asset are taxable.
No stamp duty applies to crypto transactions
Unlike trading in stocks and shares and property, cryptocurrency is not considered a marketable security, so you don’t have to pay stamp duty on your crypto transactions.
Income tax on crypto earnings
The cases where your returns from cryptocurrency will be subject to income tax are:
- Cryptocurrency received as compensation by an employer (National Insurance will also apply)
- Mining tokens
- Rewards from staking
- Receiving Airdrops
- Trading activity (in rare cases where you are deemed a trader)
How much tax do I need to pay?
You can use our tax calculator to get an understanding of how much tax you would pay on your earnings from crypto.
The tricky part is usually the record-keeping for knowing the value of the income on the day that you earned it and keeping track of the gains that you have made throughout the year, which we’ll cover next.
How to calculate your crypto position
Crypto investors generally hold multiple types of crypto and engage in various types of transactions, making it hard to get an overall view of total capital gains and earnings.
The first step is to aggregate your transactions in a way that conforms to HMRC’s prescribed calculation methods.
For example, you will need to determine the cost base for the assets that have been disposed of. The methodology that needs to be applied here can be different depending on the timing of the purchases and disposals, as well as how much has been purchased and disposed of.
This may sound hard to do, but an accountant or good software can make this easier.
Use Koinly to see your crypto portfolio
Koinly is easily our strongest recommendation for getting a handle on your cryptocurrency transactions. It is what we use in our practice for our clients with crypto activity, and is what we recommend for anyone struggling with getting a clearer picture for themselves.
It serves two main purposes:
- Getting a portfolio view of your holdings - in fact, many use Koinly as a way to monitor their crypto activity
- Enables tax reporting - it helps your accountant prepare tax reports that are compliant with your jurisdiction. We use it for the UK, but it has capabilities specific to the requirements of the US, Australia, Canada, the rest of Europe and beyond.
Accountants for cryptocurrency
We specialise in ecommerce and unsurprisingly, a lot of our clients range from dabbling in crypto to trading it frequently.
If you are holding cryptocurrency, and you need help with understanding your obligations, filing returns, making voluntary disclosures to avoid possible penalties for previous years, then we can support you. If that sounds like you, don’t hesitate to get in touch.