Crypto tax rules in the UK explained

Understand HMRC's rules about tax due on crypto and find out how to work out your tax easily.

If you’ve made big gains on your crypto, the taxman may want a slice. In this guide, we’ve set out the latest rules in plain language, and answered common questions such as “Can you put crypto in an ISA?” (spoiler alert: sadly, no).

How much tax do you pay on crypto in the UK?

As with other income or “capital gains” – profits from selling an asset for more than you paid for it – you’ll have to pay tax on your crypto if you go over your tax-free annual allowance. The tax you’ll pay depends on several factors, including the type of crypto gain or income, and other gains you’ve made in the same tax year. For example, if you made a total of more than £12,300 in capital gains – including profits from selling crypto – in the tax year 2021-22, you’ll need to pay tax.

Below is a summary of the rules for England, Wales and Northern Ireland – Scotland has different bands for income tax but the same bands for capital gains tax. These apply to the 2021-22 tax year.

Trigger for tax

 

Type of taxAllowance 2021/22Tax tiersSummary of rules
You sell/exchange/give away crypto or use it to pay for a serviceCapital gains£12,30010% for basic taxpayers; 20% for higher-rate taxpayersCapital gains tax due if total capital gains exceed annual allowance in the tax year. The capital gain is the difference between selling and buying price (some exceptions)
You get paid in the form of cryptoIncome£12,570Normal income tax rates apply – 20%, 40% or 45% (not Scotland)Normal income tax and national insurance rules apply for income
National insurance£9,568 (£12,570 from July 2022)9% or 2% depending on earningsYou’ll owe class 1 national insurance. The income is added to any other income to work out your tax rate
You get over £1,000 income from crypto mining and stakingIncome£12,570Normal income tax rates apply – 20%, 40% or 45%You’ll need to register as self-employed and complete a tax return. The income is added to any other income to work out your tax rate
National insurance£6,5159% or 2% depending on earningsYou’ll owe class 2 and class 4 national insurance on income received as a self-employed person

Working out the tax due on your crypto can be complex and that’s where crypto tax software comes in. Crypto tax software integrates with the exchange you use to buy and sell your cryptocurrency. It automatically grabs the details of your transactions and records them for your tax records. Software can also help with preparing your tax forms at the end of the tax year.

Crypto capital gains tax rules

Capital gains tax can be due on cryptoassets when you sell them for more than the purchase price and your total gains for that tax year – including from other sources such as selling shares – are above your tax-free allowance. We explain below what triggers the need to pay capital gains tax and how to calculate the gain.

What triggers capital gains tax?

You may need to pay capital gains tax if:

  • You sell, gift, exchange cryptoassets or use them to pay for goods or services
  • You dispose of tokens or coins you received for free

How to calculate your capital gain

The gain is usually the difference between selling and buying price. Here’s a summary of how to calculate your gain:

  • Start with the sale price. Use the market value if you give away or exchange a cryptoasset.
  • Deduct the pooled cost of the tokens you sell using the share pooling rules below.
  • If you sell and rebuy cryptoassets within 30 days, the rules are different (see “bed and breakfast” rules below).
  • Don’t deduct costs from activities where you pay income tax. You can’t deduct costs twice.

Share pooling explained

HMRC has complex share-pooling rules in the UK. They’re a way of working out an average cost for your cryptoassets. Here is a summary:

  • Group each type of token you own into pools and work out a pooled cost. The pooled costs include purchase price, transaction fees, advertising for a buyer or seller, drawing up a contract for a transaction and making a valuation so you can work out your gain for that transaction.
  • When you sell tokens from a pool, you can deduct a proportion of the pooled cost (along with any other allowable costs) to reduce your gain.
  • You need to record the pooled cost every time you buy or sell cryptoassets.
  • If you sell and rebuy cryptoassets within 30 days then different rules apply known as “bed and breakfast” rules (see below).

“Bed and breakfast” rules for cryptoassets sold and rebought within 30 days

If you sell and rebuy cryptoassets within 30 days, the rules for working out your costs get even more complicated. These rules are designed to stop crypto investors manipulating their gains by selling and rebuying cryptoassets to create an artificial loss. Here’s a summary:

  • Same-day rules: If you buy and sell the same type of cryptoasset on the same day, then you work out the cost of the disposed crypto by taking the average cost of the crypto bought that day. In other words: you may not have a gain or a loss. If you’ve sold more of a cryptoasset than you bought on that day, then the rule below applies for the remaining amount.
  • 30-day rules: If you sell and rebuy the same cryptoasset within 30 days, the cost of the disposed crypto is calculated by matching the acquired shares to disposals on the basis of the earliest disposal first. If you’ve sold more of a cryptoasset than you bought in the following 30 days, the rule below applies for the remaining amount.
  • Section 104 Holding: Calculate the average cost for all cryptoassets bought before the disposal date. The normal share pooling rules apply here.

How to work out what tax is due

If you’ve earned more than the annual allowance in total chargeable gains, including gains on cryptoassets, then you may have to pay capital gains tax.

  • If you’re a higher-rate taxpayer (including your capital gains for the year) you’ll pay tax at 20% on your total capital gains.
  • If you’re a lower-rate taxpayer (including your capital gains for the year) you’ll pay tax at 10% on your total capital gains.
  • In rare cases, where you’re trading huge amounts of cryptoassets, HMRC may consider you to be a trader and ask you to pay income tax instead of capital gains tax.
Example: How HMRC’s crypto tax rules work in practice

Sadie owns crypto worth £50,000 that she bought for £30,000. They’re all the same type of crypto. She also has a mining profit of £2,000 in the same tax year (her mining income minus her mining expenses). She sells all her crypto and realises a gain of £20,000. She has a chargeable gain of £7,700 (£20,000 minus £12,300 annual allowance for 2021-22). She is a higher-rate tax payer so she owes £1,540 in tax (£7,700 at 20%). She fills in a SA108 capital gains summary as part of her self-assessment. HMRC sends her a letter with a payment reference number, telling her how to pay. She also declares her £2,000 mining profit on her tax return and pays income tax of £800 (£2,000 at 40%) on this profit.

Income tax on cryptoassets

If you mine or stake cryptoassets you may have to pay income tax on your gains. Here are the detailed rules:

  • Small amount of mining and staking. You’ll owe income tax if you have a mining income over £1,000 per tax year. You have 2 options: firstly, you can choose to deduct a £1,000 “trading allowance” (this is the allowance for the tax year 2021-22) from your income but you won’t be allowed to deduct expenses if you choose this option. Secondly, you can declare your mining income and your mining expenses on your tax return and pay income tax on your profit.
  • Large amount of mining and staking. HMRC may deem that you’re running a mining business and count your mining income as part of your trading profits.
  • Airdrops or free coins and tokens. You won’t owe any income tax, as long as you receive them without doing anything in return and you don’t receive them as part of a trade or from mining. If you earn airdropped tokens as a reward or a trade then you’ll have to report the details as income.

Inheritance tax on cryptoassets

Just as with other assets, you may have to pay inheritance tax on cryptoassets you inherit. The amount of tax to pay should be worked out as part of the probate process and paid from the estate before you receive your cryptoassets.

The amount of inheritance tax due depends on the overall size of the estate and the circumstances of the person who died. A single person gets a nil-rate band of £325,000 when they die (no tax to pay below that threshold) and assets over this amount will be subject to 40% inheritance tax.

If someone has been widowed they may get a double nil-rate band of £650,000 because the first spouse can pass their nil rate band onto the surviving spouse.

Can you put crypto in an ISA?

No, you can’t hold crypto in an ISA. However, there are a few ways you can get exposure to crypto-related companies through a stocks and shares ISA. Here are some possible ideas:

  • Buy shares in a crypto-mining company such as Argo Blockchain
  • Invest in a company that trades in blockchain technology; this includes some established companies like IBM, Oracle and Visa
  • Buy shares in an ETF that invests in blockchain companies

Bottom line

When you make a profit on your crypto, your tax return might be the last thing on your mind. But if you’re making big capital gains – including on other assets – it pays to take the time to record your information properly or go the easier route and use crypto tax software. It will save you a massive headache in the long run.

Frequently asked questions

The tax you need to pay depends on your individual circumstances and can change over time. This content is for information only - it's not tax advice. You're responsible for carrying out your own checks and for getting professional advice before making financial decisions.

Cryptocurrencies aren't regulated in the UK and there's no protection from the Financial Ombudsman or the Financial Services Compensation Scheme. Your capital is at risk. Capital gains tax on profits may apply.

Cryptocurrencies are speculative and investing in them involves significant risks - they're highly volatile, vulnerable to hacking and sensitive to secondary activity. The value of investments can fall as well as rise and you may get back less than you invested. Past performance is no guarantee of future results. This content shouldn't be interpreted as a recommendation to invest. Before you invest, you should get advice and decide whether the potential return outweighs the risks. Finder, or the author, may have holdings in the cryptocurrencies discussed.

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