Cryptocurrency Taxation for UK Investors

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. 

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:

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:

 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:

Step 3: Apply tax-free allowance

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:

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

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

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

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