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Do I Need to Pay Tax on Cryptocurrency?

Are you familiar with cryptocurrency, or is it new to you? Maybe you're just curious about investing in it?

Regardless of your experience, if you're considering cryptocurrency or Bitcoin, it's a good idea to learn how HMRC handles taxes.

Here's what you need to know about cryptocurrency taxes in the UK.

Bitcoin, dogecoin and ethereum

If you're too busy to go through HMRC's extensive guidance on crypto assets, which you can find here, our in-depth guide provides a closer examination of all the essential information regarding cryptocurrency taxes in the UK.

Let's get started.

Do you owe taxes on crypto? Unfortunately, yes, for most crypto investors. There are some exceptions, though.

Crypto isn't considered regular money by major financial institutions. From a tax viewpoint, it's treated like shares and taxed accordingly.

Even though some crypto trading can be shady, lawful crypto investments are closely monitored by tax authorities.

Crypto traders and investors need to be mindful of various transactions, from simple buying and selling to complex actions like hard forks, airdrops, staking, and more.

The crypto industry is evolving rapidly, making tax rules more complex. The emergence of unique and intricate cryptocurrencies for gaming, gambling, non-fungible tokens, and specific purposes has changed the landscape.

If you're not a UK tax resident or lack UK domicile, you might enjoy more favorable tax rules.

When do you pay tax on cryptocurrency?

There are various activities related to cryptocurrency that can make you liable for taxes:

1. Buying and selling crypto: If you sell your crypto for more than you bought it, you might owe capital gains tax on the profit. Losses from trading can reduce your tax bill. Swapping cryptocurrencies also triggers a taxable event.

2. Income from crypto: Regardless of the cryptocurrency you receive as income, you'll have to pay income tax and national insurance contributions.

3. Inherited crypto: HMRC treats inherited cryptocurrency as property under UK tax law.

4. Mining and validating: Whether mining is a hobby or a business depends on factors like organization, risk, activity level, and commerciality.

Mining as a business: If it's a business, mining income is subject to income tax, and gains are taxed when you dispose of the crypto.

Mining as a hobby: Hobbyist miners must declare income as miscellaneous income and pay taxes based on the market value of the crypto when received. 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 the income before adding it to the taxable income. But it will be subject to capital gains tax when you dispose of this crypto.

Staking: The GBP value of tokens received is taxable as miscellaneous income, with reasonable expenses reducing the taxable amount. You may consider it as savings income and claim personal savings allowance to reduce taxes.

How much tax do you pay on crypto gains?

Income tax is applied when you buy, sell, or receive cryptocurrency as part of your trade. "Day-traders" actively trading for short-term profit pay income tax. To be considered a "trader," you need to meet certain criteria, and the profits are taxed based on your income tax bracket. To be considered a "trader," you must buy and sell crypto with the purpose, complexity, frequency, and organisation that makes it a financial trade.

Capital gains tax is usually applied to individuals who buy, hold, and sell cryptocurrency as an investment. You're taxed on total gains exceeding the annual tax-free allowance (£6,000) at rates of 10% and 20%, depending on your tax band.

Can you avoid paying tax on crypto? No! However..

There are some instances where you may not need to pay tax on crypto:

1. Airdrops: No income tax is applied if airdrops are not part of a crypto trade or received without exchange. However, if they're received for services, income tax may apply.

2. Some crypto transactions aren't subject to tax, such as holding crypto long-term, transferring between wallets, buying with fiat currency, or gifting to a spouse.

How to pay tax on crypto?

Crypto investors need to report gains on their annual self-assessment tax return or use HMRC's real-time capital gains tax reporting service. Keeping accurate records, including the type of tokens, dates, quantities, values, and transaction details, is essential for tax compliance.

According to HMRC, crypto investors should report the following:

  1. The types of tokens you have.

  2. The dates when you sold them.

  3. The quantity of tokens you sold.

  4. The quantity of tokens you still hold.

  5. The value of the tokens in British pounds.

  6. Your bank statements and wallet addresses.

  7. Records of combined costs before and after selling them.

Seeking the right financial advice for your situation is crucial. If you would like to speak to an expert on this for additional advice, contact or 0141 266 0563.


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