Crypto tax rules in the UK explained

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.

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.

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

• What records do I need to keep?

  You need to keep track of all your crypto transactions each tax year in case HMRC carries out a compliance check. You’ll need to keep detailed records for each crypto transaction, including the following:

  • • • Date of disposal
      • Type and number of cryptoassets disposed of
      • Value of transaction in Sterling
      • Number of tokens you still own
      • Bank statements and wallet addresses
      • Details of the pooled costs before and after you disposed of them

• What tax forms do I need to prepare?

  You’ll have to complete a capital gains summary (SA108) if your total capital gains are more than the annual allowance (£12,300 in 2021-22). This form sets out your total gains and losses during the tax year, including cryptoassets.

  If your total capital gains are less than the annual allowance, you may still need to fill in an SA108 form if you sold assets worth more than 4 times your allowance and you are registered for self-assessment.

  If you earn more than £1,000 through crypto mining or staking, you’ll need to report your crypto income to HMRC.

• When do I need to report and pay capital gains tax?

  You have a choice about how to report capital gains. You can either report them straight away using the government gateway. If you choose this option, you’ll need to report your gains before 31 December in the tax year after you made the gain. For example, if you made a gain in the 2021 to 2022 tax year, you need to report it by 31 December 2022.

  The other option is to wait until your self-assessment is due and report the gain as part of that process. You’ll need to complete a self-assessment form by 31 January after the end of the tax year.

  If your total capital gains are under the annual allowance then you may still need to report gains if both of the following apply:

  • • • You sold the assets for more than 4 times your annual allowance
      • You’re already registered for self-assessment

• What else should I do for the end of the tax year?

  It’s important to be ready for the tax year end so you don’t end up with a massive headache. Set calendar alerts and give yourself plenty of time to prepare. And consider hiring an accountant or using crypto tax software, especially if you have capital gains of over £12,300.