UK cryptocurrency tax guide : everything you need to know

UK cryptocurrency tax guide: everything you need to know
UK citizens who deal with or invest in crypto may need to pay taxes on their trades. Here's everything you need to know about tax on cryptocurrency.
Are you experienced in investing in cryptocurrency? Is it completely new to you? Or maybe you are just intrigued by the prospect of investing?
Whatever your situation, before you delve deeper into the world of cryptocurrency or bitcoin, it’s wise to understand how HMRC taxes them.
If you don’t have time to read HMRC’s full guidance for those with crypto assets, which you can find here, our comprehensive guide offers a closer look into everything you need to know about UK cryptocurrency taxes.

Yes, for most crypto investors. There are some exceptions to the rules, however.
Crypto assets aren’t considered money or currency by key financial institutions. From a tax perspective, crypto assets are treated like shares and will be taxed accordingly.
Crypto traders and investors need to be aware of the wide array of transactions ranging from basic purchase and sell orders all the way through to hard forks, airdrops, staking and more.
The crypto industry is developing rapidly, and the position on tax has inevitably become more complicated.
The emergence of complex cryptocurrency-like gaming and gambling platforms, as well as non-fungible tokens and hybrid tokens for specific purposes, has changed the asset class.
If you are not a UK tax resident or do not have a domicile in the UK, then you may benefit from more favourable tax rules.
There are several activities associated with cryptocurrency that you will be taxed on:

Mining cryptocurrency will either be considered a hobby or a fully-fledged business. This will depend on several factors:
1. Organisation
2. Risk
3. Degree of activity
4. Commerciality
If your mining activity is considered a business, the mining income will be added to trading profits and be subject to income tax deductions.
When you dispose of cryptocurrency, any gain in value from the acquisition time will be added to your trading profits, and the transaction may be subject to NI contributions.
If your mining activities can be classed as a hobby, any income must be declared under miscellaneous income when you fill out your tax return.
It will be the fair market version of the value of the crypto at the time you receive it.
Any rewards or fees received in exchange for mining activity will also be added to your taxable income.
However, you may be able to deduct reasonable expenses from income before adding it to the taxable income. But it will be subject to CGT when you dispose of this crypto.
According to HMRC, the GBP value of any tokens awarded at the time of receipt will be taxable as miscellaneous income with any reasonable expenses reducing the chargeable amount.
Individuals may want to treat it as savings income and use the personal savings allowance to reduce their tax bill.
Speak with a tax accountant if you consider this, as CGT rules may apply if you dispose of it at a later date.
Income tax is usually applied to those buying, selling or receiving cryptocurrency through a trade.
A ‘day trader’ is probably the most obvious example – someone who actively buys and sells crypto assets to create short-term profit.
However, individuals are unlikely to meet the description of a ‘trader’ for income tax purposes if trading on their own account, meaning they will likely be considered under the CGT regime.
To fall into the definition of ‘trading’, you would need to buy and sell crypto assets with such intention, sophistication, frequency and level, or organisation that the activity amounts to a financial trade.
If you meet the trading threshold, net profits will be subject to income tax at 20%, 40% and 45% (based on the tax bracket your income falls into) and national insurance at 10% and 2%.
Any money made from crypto as an income will count towards your income tax: 0% to 45% depending on your tax band in England, Wales and Northern Ireland, or if you’re in Scotland – which has two more bands – a 19% starter rate and 21% intermediate rate.
In most cases, anyone buying, holding and selling cryptocurrency on their own account is considered to be undertaking investment activity and is subject to CGT.
Disposing of crypto assets will result in a taxable event, with the value of any disposal proceeds matched against purchases in a specific order:
1. Crypto assets acquired on the same day
2. Crypto assets acquired in the following 30 days
3. The average cost of any unmatched crypto assets (‘the pool’)
Individuals pay CGT on their total gains above an annual tax-free allowance of £3,000.
Any gains above this allowance will be taxed at 18% if you fall within the basic rate tax band (after your taxable gain is taken into account) or 24% if you’re in the higher rate tax bracket.
There are some instances in which individuals will not need to pay tax on crypto.
Income tax will not be applied to airdropped crypto if:

However, if airdrops are received in return for carrying out a service, they will be subject to income tax and classed as miscellaneous income, or trading profits (if you are a business).
If a crypto trader or business receives an airdrop, any valuation increase will be added to the trading profits and will be subject to income tax, as well as NI contributions.
But if an individual receives an airdrop, that will be subject to CGT at the time of the disposal.
Similarly, the following crypto transactions aren’t subject to CGT or income tax in the UK:

Crypto investors need to report gains on cryptocurrency on their annual self-assessment tax return or they can use HMRC’s real-time CGT reporting service to pay tax.
Accurate record-keeping is really important for anyone who is self-employed, and crypto investors are one such group who also need to keep accurate records for tax purposes too.
HMRC says crypto investors must declare the following:

Navigating the complexities of crypto taxation can be challenging, especially with evolving rules and allowances.
Seeking professional financial advice can provide clarity, help minimise your tax liabilities, and ensure you make informed decisions about your cryptocurrency investments.
If you’re unsure what you need to declare, Unbiased can quickly match you with a qualified financial adviser who may be able to help.
Find an IFA, Qualified financial advisers, Restricted financial advisers, Mortgage advisers and Accountants, Adviser Search, financial guides, financial tools and impartial information on professional financial and legal advice. 0800 011 9671
Any financial promotions issued by Unbiased Limited have been approved for the purposes of section 21 of the Financial Services Market Act 2000 by Prosper Capital LLP which is authorised and regulated by the Financial Conduct Authority (FRN: 453007)