Cryptocurrency Taxation for UK Investors

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[Approved by Archax 16/05/2025]

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The information in this article is for general informational purposes only and should not be considered as tax, financial, or legal advice.

Tax laws and regulations concerning cryptocurrency are complex and subject to change.

Please consult with a qualified tax professional, financial advisor, or legal counsel for advice specific to your individual circumstances.

How does HMRC view cryptocurrency?

HMRC (His Majesty's Revenue and Customs) treats crypto as assets, not currency. You pay tax based on how you use your crypto.

What are the different types of crypto assets?

HMRC recognizes three main types:

Exchange tokens - Bitcoin, Ethereum and other tradable cryptocurrencies
Utility tokens - Tokens that provide access to specific services
Security tokens - Tokens representing ownership rights

For most investors, HMRC's rules focus on exchange tokens.

When is your crypto taxed as an investment vs. business activity?

How HMRC taxes your cryptocurrency largely depends on your purpose for holding it:

1. Investment (Most crypto holdings are presumed to be investments)

You pay: Capital Gains Tax when disposed
Disposal includes Selling for GBP, exchanging for other crypto, buying things, or gifting

2. Business trading (Only applies in exceptional cases with sufficient frequency, organization, and sophistication)

You pay: Income Tax
Applies when: You buy and sell with high frequency and organization

HMRC assumes most individual activity is investment, not trading.

When do you pay Capital Gains Tax on crypto?

You pay CGT when you:

Sell crypto for pounds
Swap one crypto for another
Use crypto to buy goods or services
Gift crypto (except to your spouse)

Important: You pay tax only on your profit, not the total amount.

How do you calculate your crypto gains and losses?

Step 1: Find your disposal value

Calculate the GBP value when you sold or exchanged the crypto

Step 2: Subtract your costs

Deduct:

Purchase price
Transaction fees
Acquisition costs

Step 3: Apply tax-free allowance

Current allowance: £3,000 (2024/2025 tax year)
Previous allowance: £6,000 (2023/2024 tax year)

Step 4: Calculate tax based on your income band

Basic rate (income up to £50,270): 18%
Higher rate (income above £50,270): 24%

How do HMRC's pooling rules work?

HMRC uses "pooling" to calculate your crypto cost basis. The rules apply in this order:

1. Same-day rule

If you buy and sell the same crypto on the same day, use that day's purchase cost to calculate gains.

2. 30-day rule

If you sell crypto and buy the same type within 30 days, use the new purchase to calculate your earlier gain.

3. Section 104 pool

For all other transactions, use the average cost of all your holdings of that crypto type.

Remember: Create separate pools for each cryptocurrency you own.

What records do you need to keep?

Essential information to record:

Crypto asset type
Transaction dates
Buy or sell action
Number of units
GBP value at time of transaction
Wallet addresses
Running total of holdings

Best ways to track your transactions:

Export exchange records regularly
Use dedicated crypto tax software
Create detailed spreadsheets
Save all receipts and confirmations

How long should you keep records?

Self-Assessment filers: 5 years after January 31 deadline
Others: 22 months after tax year end
Best practice: Keep indefinitely for long-term investments

What happens in common crypto tax situations?

When you buy and sell crypto

Calculate your gain (sale price minus purchase price)
Apply CGT if gains exceed your annual allowance
Report on Self-Assessment by January 31

When you swap one crypto for another

This counts as a disposal
Convert value to GBP at time of swap
Calculate and report any gain

When you receive crypto as income

These are subject to Income Tax:

Mining rewards
Staking income
Airdrops (for services)
Payment for work
Salary in crypto

Income Tax rates: 20-45% based on your tax band.

What if you lose access to your crypto?

Lost private keys: Possible capital loss claim with proof
Theft: Report to Action Fraud and provide evidence

HMRC reviews loss claims individually and requires strong evidence

Key takeaways

HMRC treats crypto as assets subject to Capital Gains Tax or Income Tax
Keep detailed records of all transactions with GBP values
Know your £3,000 annual tax-free CGT allowance (2024/2025)
Use HMRC's pooling rules to calculate cost basis correctly
Report crypto activity on your Self-Assessment by January 31
Consult a tax professional for personalized advice
For official HMRC guidance visit HMRC's Cryptoassets Manual