Dabbling in crypto? Although there’s no specific UK crypto tax, you may still need to pay additional income tax and/or Capital Gains Tax. In this article, we’ll look at what all this means, how much tax you might need to pay, and who to tell about it.

Earning cryptocurrency in the UK will attract National Insurance and income tax exactly like any other income. This includes if your employer pays you in crypto, or if you receive rewards for mining cryptocurrency.

There are three other reasons why you may need to pay income tax on your crypto:

1. Trading crypto

There’s no clear HMRC guidance on this but if you’re making organised, regular profit from trading crypto then income tax will likely be due. When you exchange your crypto for Sterling, you may also need to pay Capital Gains Tax on any profit.

2. Receiving airdrops

Sometimes you may receive airdropped crypto as a reward for undertaking a particular service. As this is treated as miscellaneous income it may, again, be subject to tax.

3. Staking for crypto

Any tokens you’re given from staking crypto is also miscellaneous income and could be taxed.

Everyone in the UK can earn up to £12,570 in a tax year before they need to pay tax. So, if your total earnings in a tax year take you over this threshold – for example because you have a day job, rent out property, earn money from crypto, or have pension income – you’ll need to start paying income tax too.

Calculating the Fair Market Value (FMV) of your crypto income

To work out how much tax you’ll need to pay on your crypto, you first need to calculate how much it was worth at the specific time and date you received it. This will help you see its value in Pounds Sterling. There are several UK crypto tax calculators you can use online to do this.

What rate of tax will I need to pay?

Once you convert your crypto currency into British Pounds, you can add it to any other income you receive to work out the total for the year. The rate of income tax that you pay depends on how much of your income falls into each tax bracket.

You may also need to pay Capital Gains Tax – which we’ll explain in the next section.

This table shows the tax rates for taxpayers in England, Wales, and Northern Ireland. There are different rates and thresholds for Scottish taxpayers.

In the UK, crypto is classed as an asset, which is why if you send, sell, or swap it and make a profit, you might need to pay Capital Gains Tax. Think of it like any other asset, for example if you sell shares in a company.

This tax year (2023/24), each person in the UK has a tax-free capital gains allowance of £6,000. So, if you make less than this in crypto profit you aren’t required to report your crypto profits or pay CGT. Do, however, bear in mind that you may still need to pay income tax if you’ve exceeded the personal tax threshold as we’ve discussed above.

You might also still need to pay Capital Gains Tax on your crypto profits if any of the below apply to you:

Using crypto to buy goods and services

In this case, you may need to pay Capital Gains Tax on any profits you generated between the time it was bought and the time it was spent. This is regardless of whether your profits were made over 5 years or 5 hours – the tax will remain the same.

Selling crypto in exchange for Pounds

Selling your crypto so you can receive GBP in return means you may well need to pay Capital Gains Tax on any profit you make.

Gifting crypto (except to your spouse or civil partner)

Giving your crypto away to someone else may also mean you need to pay Capital Gains Tax on any profit made between acquiring it and giving it away. This doesn’t apply if you’re gifting it to your spouse or civil partner.

Swapping crypto for crypto

Again, you’ll need to pay Capital Gains Tax on any profits made between when you bought the original token and when you swapped it.
 

A good place to start is by going through all your transactions to see which ones will actually attract Capital Gains Tax. You will then need to work out the profit (or the “gain”) you made.

Calculate the cost basis for each crypto transaction

This is essentially how much you paid for your crypto, in addition to any transaction fees.

For example, you pay £20,000 for 1 Bitcoin and pay £150 in transaction fees. This means your cost basis is £20,150.

Work out the gain that you made

You sell your 1 Bitcoin for £30,000 (so this is the value of your crypto at the time and date you gifted, swapped, spent, or sold it). Deduct the cost basis from this value. In this case your calculation is £30,000 – £20,150, so your profit (the “gain”) is £9,850.

Deduct the tax-free allowance for Capital Gains Tax

In 2023/24 this is £6,000. £9,850 minus £6,000 is £3,850. You’ll pay Capital Gains Tax on £3,850.

How much tax you’ll pay on the gain

The rate of tax that you’ll pay on the gain depends on which band your total income for the year falls into.

In this example, you earn £60,000 from an employer in addition to the £9,850 gain you make from crypto. Your total income for the year is £69,850, which puts your total earnings into the higher rate of income tax bracket.

Capital Gains are taxed depending on whether they’re made from residential property or another type of asset. In this case, crypto falls into the second category.

As a higher rate taxpayer, you’ll pay 20% tax on the taxable gain of £3,850. Your bill for CGT will be £770.

I’ve made a loss on my crypto currency. What does this mean for tax?

If you make a loss on your crypto, your taxable gains will be reduced. It’s worth remembering that these losses can be carried forward for up to four years from the end of the tax year during which the loss was incurred.

This means that you can carry the loss from one year forward and offset it against a year which makes a profit – reducing your tax bill.

When will crypto transactions not be subject to tax?

In certain cases, no income tax or Capital Gains Tax will need to be paid on your crypto transactions at all. This would be the case if you’re:

• Transferring your crypto between wallets that are both owned by you
• Buying crypto with fiat currency. Fiat currency is a national currency which isn’t tied to the price of another commodity such as gold. For example, Sterling or Euros
• Gifting your crypto to somebody who is your spouse or civil partner
• Holding your crypto

 
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