Outline
Introduction
Do You Have to Pay Tax on Crypto in the UK?
How Much Tax Do You Pay on Crypto in the UK?
How Much Tax Will You Pay on Crypto Income?
How is Crypto Taxed in the UK?
Can HMRC Track Crypto?
UK Cost Basis Method
Crypto Capital Losses
Is Any Crypto Tax Free?
Specific Crypto Tax Scenarios
How to Calculate Your Crypto Taxes
How to Use a Crypto Tax App like Koinly
Which Crypto Exchanges Report to HMRC?
Cryptocurrency Taxation in the UK: A brief Guide by crypto tax accountants
Are you confused about how your crypto investments are taxed in the UK? You’re not alone. This guide by FAAS crypto tax accountants will break down everything you need to know about cryptocurrency taxation in simple terms, with easy-to-understand examples.
Do You Have to Pay Tax on Crypto in the UK?
Yes, you generally have to pay tax on your cryptocurrency in the UK. The two main types of taxes that apply to crypto are:
- Capital Gains Tax (CGT)
- Income Tax
How Much Tax Do You Pay on Crypto in the UK?
The amount of tax you pay depends on your total income and gains. Let’s break it down:
Crypto Capital Gains Tax UK
Capital Gains Tax applies when you sell, trade, or spend your cryptocurrency. The rates are:
- Basic rate taxpayers: 10%
- Higher and additional rate taxpayers: 20%
Capital Gains UK Tax-Free Allowance
Good news! You have an annual tax-free allowance for capital gains. For the 2023/24 tax year, it’s £6,000. This means you only pay CGT on gains above this amount.
Example: If you made £8,000 in crypto gains, you’d only pay CGT on £2,000 (£8,000 – £6,000 allowance).
Crypto Capital Gains Tax Rates UK
Here’s a simple breakdown:
- If your total income (including your gains) is less than £50,270, you’ll pay 10% on your gains.
- If it’s more than £50,270, you’ll pay 20% on your gains.
Example: If you’re a basic rate taxpayer and made £10,000 in crypto gains, you’d pay 10% on £4,000 (£10,000 – £6,000 allowance) = £400 in CGT.
Income Tax on Crypto UK
Income Tax applies to crypto you receive as income, such as from mining, staking, or as payment for goods or services.
How Much Tax Will You Pay on Crypto Income?
The rates are the same as for any other income:
- Basic rate: 20% (for income between £12,571 and £50,270)
- Higher rate: 40% (for income between £50,271 and £125,140)
- Additional rate: 45% (for income over £125,140)
Example: If you earned £5,000 from crypto mining and your total income puts you in the basic rate band, you’d pay 20% on this amount = £1,000 in Income Tax.
How is Crypto Taxed in the UK?
Capital Gains Tax
CGT applies when you dispose of your crypto. This includes:
- Selling crypto for fiat currency (like GBP)
- Trading one cryptocurrency for another
- Using crypto to buy goods or services
Income Tax
Income Tax applies when you receive crypto as income. This includes:
- Mining rewards
- Staking rewards
- Airdrops
- Payment for goods or services
Can HMRC Track Crypto?
Yes, HMRC can track crypto transactions. They have the power to request information from UK-based exchanges and can use blockchain analysis tools. It’s always best to report your crypto activities accurately.
If you would like to know more details how HMRC tax crypto, please see the link to HMRC Manuals.
UK Cost Basis Method
The UK uses the “share pooling” method to calculate your cost basis. This means that when you sell crypto, you’re considered to be selling a portion of your entire holding of that cryptocurrency.
Example: If you bought 1 Bitcoin for £30,000 and later another for £40,000, your cost basis for selling 0.5 Bitcoin would be £17,500 ((£30,000 + £40,000) / 2 * 0.5).
Crypto Capital Losses
If you make a loss on your crypto investments, you can use this to offset your gains. You can also carry forward unused losses to future tax years.
Example: If you made a £5,000 gain on Bitcoin but a £3,000 loss on Ethereum, your net taxable gain would be £2,000.
Is Any Crypto Tax Free?
While most crypto transactions are taxable, there are a few exceptions:
- Buying crypto with fiat currency (like GBP) isn’t taxable
- Transferring crypto between your own wallets isn’t taxable
- Donating crypto to registered charities can be tax-free
Lost or Stolen Crypto
If you’ve lost access to your crypto (e.g., lost private keys) or it was stolen, you may be able to claim this as a capital loss. You’ll need to provide evidence to HMRC.
When Do You Need to Report Your Crypto Taxes to HMRC?
You need to report your crypto taxes by January 31st following the tax year in which you made the gains or received the income. The UK tax year runs from April 6th to April 5th the following year.
How to Report Crypto Taxes to HMRC
You can report your crypto taxes through your Self Assessment tax return. If you’re not registered for Self Assessment, you’ll need to register first.
Specific Crypto Tax Scenarios
Do You Pay Tax When You Buy Crypto in the UK?
No, buying crypto with fiat currency isn’t a taxable event.
Do You Pay Tax When You Sell Cryptocurrency in the UK?
Yes, selling crypto for fiat currency is subject to Capital Gains Tax.
Do You Pay Tax When Transferring Crypto?
Transferring between your own wallets isn’t taxable. However, transferring to someone else could be considered a gift and may have tax implications.
How Are Airdrops and Forks Taxed in the UK?
Airdrops are typically treated as income when you receive them. Hard forks that result in new tokens may also be treated as income.
Crypto Gifts and Donations Tax
Giving crypto as a gift to an individual isn’t immediately taxable, but the recipient inherits your cost basis. Donating to registered charities can be tax-free.
Crypto Mining Tax UK
Mining rewards are treated as income and subject to Income Tax.
Crypto Day Trading Tax UK
Day trading is typically treated as a form of investment and subject to Capital Gains Tax. However, if it’s your main source of income, it could be considered a business and taxed differently.
DeFi Crypto Taxes UK
DeFi activities can be complex. Generally:
- Lending rewards are treated as income
- Gains from selling tokens are subject to CGT
Do You Pay Tax When Spending Crypto?
Yes, spending crypto is considered a disposal and subject to Capital Gains Tax.
How to Calculate Your Crypto Taxes
- Keep detailed records of all transactions
- Calculate your gains/losses for each disposal
- Apply the annual CGT allowance
- Calculate your tax liability based on your tax band
How to Use a Crypto Tax App like Koinly
Crypto tax apps can simplify the process:
- Connect your wallets and exchanges
- The app calculates your gains/losses
- Review and export your tax report
What Kind of Records Might HMRC Ask For?
HMRC may request:
- Exchange records
- Wallet addresses
- Bank statements
- Dates and values of transactions
How to Avoid Paying Tax on Cryptocurrency UK
While you can’t avoid paying taxes altogether, you can minimize them:
- Use your annual CGT allowance
- Offset gains with losses
- Time your disposals across tax years
Cryptocurrency Trading as a Business
If your crypto activities are considered a business, you’ll be subject to Income Tax and National Insurance instead of CGT. This is determined on a case-by-case basis.
Which Crypto Exchanges Report to HMRC?
HMRC can request information from any UK-based exchange. Some international exchanges also share information under global agreements.
Remember, this guide provides general information. For personalized advice, always consult with a qualified tax professional.