The world of digital assets continues to change rapidly, which means it’s important (and challenging) to understand how cryptocurrency and UK tax obligations intersect. As we move through 2025, both experienced crypto investors and newcomers to the space must be aware of their tax responsibilities to avoid unexpected penalties and ensure compliance with HMRC regulations.
Cryptocurrency and UK Tax: The basics you need to know
HMRC does not consider cryptocurrencies to be currencies or money but rather assets that can be subject to capital gains tax when disposed of. This classification has significant implications for how your crypto activities are taxed.
When do you need to pay tax on cryptocurrency?
You may be liable for cryptocurrency UK tax when you:
- Sell cryptocurrency for fiat (government-issued) currency, like GBP, EUR and USD
- Exchange one cryptocurrency for another
- Use cryptocurrency to pay for goods or services
- Give cryptocurrency away to another person (unless it’s to your spouse or a charity)
- Mine or stake cryptocurrency as a personal activity
It’s worth noting that simply buying and holding cryptocurrency doesn’t trigger a tax event. Tax is only due when you dispose of your assets in one of the ways listed above.
Capital Gains Tax on cryptocurrency
The most common tax you’ll encounter with cryptocurrency is Capital Gains Tax (CGT). Recent changes to CGT rates will affect your cryptocurrency investments starting from April 2025. From 6 April 2025, the main rates of CGT will increase from 10% to 18% for standard rate taxpayers and from 20% to 24% for higher rate taxpayers.
With these upcoming increased rates, it’s more important than ever to start tracking your crypto transactions carefully and ensure you’re claiming all eligible expenses to reduce your taxable gains before the new rates take effect.
Record-keeping for cryptocurrency investors
One of the biggest challenges for cryptocurrency investors is maintaining accurate records. HMRC expects you to keep detailed records of each cryptocurrency transaction, including:
- Type of cryptocurrency
- Date of transaction
- If they were bought or sold
- Number of units involved
- Value of the transaction in GBP
- Cumulative total of investment units held
- Bank statements and wallet addresses
Using cryptocurrency tracking software can significantly simplify this process, particularly if you have numerous transactions across multiple platforms or wallets.
Need help with the complexities of cryptocurrency and UK tax? Our expert team at Green & Peter specialises in digital asset tax planning. Don’t risk costly mistakes or missed opportunities – book a no-obligation 30-minute consultation today by calling 0208 446 8100 or scheduling online.
Recent developments in cryptocurrency and UK Tax reporting
Making Tax Digital and cryptocurrency
As part of HMRC’s Making Tax Digital initiative, income tax self-assessment returns will be brought within the scheme from April 2026 for self-employed business owners earning over £50,000. From April 2027, this will apply to those earning over £30,000. This change will affect crypto traders that HMRC considers as trading (rather than investing) for tax purposes.
If you’re actively trading cryptocurrency at a frequency and scale that HMRC considers to be a trade or business, you’ll need to prepare for these reporting changes. Setting up accounting software that can integrate with cryptocurrency tracking tools is advisable well before this deadline.
DeFi and NFT taxation: A deeper look
HMRC has been gradually clarifying its position on newer aspects of the crypto ecosystem. Let’s look at how these are typically treated for tax purposes:
DeFi (Decentralised Finance) taxation:
- Liquidity provision: When you provide liquidity to pools on decentralised cryptocurrency exchange platforms like Uniswap or SushiSwap, the initial deposit is generally not a taxable event. However, when you receive LP tokens in exchange for your deposit, this may be considered a disposal of your original assets.
- Yield farming rewards: These are typically treated as income at the GBP value when received, then subject to CGT on any subsequent gains when disposed of.
- Interest from lending platforms: If you lend your cryptocurrency on platforms like Aave or Compound, the interest earned is likely considered income and taxable at your income tax rate.
- Governance token rewards: Tokens received for participation in protocol governance are usually treated as income at the time of receipt.
NFT (Non-Fungible Token) taxation:
- For collectors: Buying an NFT is not a taxable event, but selling or trading an NFT is subject to CGT on any profit made.
- For creators: If you mint and sell NFTs as part of a business activity, the proceeds will likely be subject to Income Tax or Corporation Tax rather than CGT. If you’re creating NFTs as a hobby, CGT may apply instead.
- Royalties from NFT sales: Secondary sale royalties received by creators are typically considered income and taxed accordingly.
Remember that HMRC considers each case individually, so the specific cryptocurrency UK tax treatment may vary based on your circumstances and the nature of your activities.
Cryptocurrency as income: Beyond capital gains
While much of the focus on cryptocurrency for UK tax purposes is on Capital Gains Tax, there are several scenarios where your crypto activities might be subject to Income Tax instead:
Mining income: Revenue from cryptocurrency mining is typically treated as income. You’ll be taxed on the GBP value of the coins at the time they’re received. Expenses directly related to mining (such as electricity and hardware costs) may be deductible if mining is considered a trade.
Staking rewards: Rewards earned from staking your cryptocurrency are generally treated as income at the point of receipt, valued at the GBP equivalent. When you later dispose of these rewards, any change in value would be subject to CGT.
Airdrops: Free tokens received through airdrops are usually taxable as income when received. The taxable amount is the GBP value at the time of receipt. However, if you’ve done nothing to earn the airdrop, HMRC might consider it a ‘windfall’ and potentially not taxable.
Payments received in cryptocurrency: If you accept cryptocurrency as payment for goods or services, this is treated as income. The taxable amount is the GBP value of the cryptocurrency at the time of receipt. Any subsequent change in value of those coins would be subject to CGT upon disposal.
Employee payments: If you receive salary or wages in cryptocurrency, this is subject to Income Tax and National Insurance contributions based on the GBP value at the time of payment.
International considerations for UK cryptocurrency holders
For UK tax residents with cryptocurrency holdings, there are important international aspects to consider:
Exchange rate calculations: When calculating gains or income from cryptocurrency transactions on international exchanges, you must convert the value to GBP using an appropriate exchange rate from a reputable source. HMRC doesn’t specify which source must be used, but you should be consistent and keep records of rates used.
Reporting foreign-held assets: UK tax residents are taxed on worldwide income and gains, regardless of where their cryptocurrency is held. This means you must report all crypto transactions, even if they occur on exchanges based outside the UK.
Double taxation issues: If you’ve paid tax on cryptocurrency gains or income in another country, you might be able to claim Foreign Tax Credit Relief to avoid being taxed twice on the same profits. The UK has double taxation agreements with many countries that may apply to cryptocurrency taxation.
Residency complications: If you’ve changed tax residency during a tax year, determining which country has taxing rights over your cryptocurrency gains can be complex. The specific timing of disposals and the details of tax treaties become crucial in these scenarios.
Declaring foreign exchange accounts: Some cryptocurrency exchanges may be considered foreign financial accounts that need to be declared separately under certain circumstances.
If your cryptocurrency activities span multiple jurisdictions, consulting with a tax professional familiar with both UK tax laws and international taxation principles is highly recommended.
Planning for cryptocurrency UK tax liabilities
Given the volatile nature of cryptocurrency markets, planning for tax liabilities is crucial. Here are some strategies to consider:
- Regular tax calculations: Don’t wait until the end of the tax year to calculate potential liabilities. Regular reviews will help you prepare for upcoming tax bills.
- Strategic disposals: Consider timing disposals to utilise your annual tax-free CGT allowance, which is currently £3,000.
- Separate accounts: Maintain a separate bank account for saving towards your crypto tax liabilities, similar to how you might save for self-assessment payments.
Getting expert help with cryptocurrency and UK tax
The cryptocurrency and UK tax landscape is complex and constantly changing. Working with an accountant who understands both traditional tax rules and their application to digital assets is invaluable.
At Green & Peter, we work with many investors and entrepreneurs in the digital asset space to help navigate the complexities of cryptocurrency taxation. Our approach is friendly and straightforward, cutting through the jargon to give you practical advice that helps minimise your tax burden while ensuring compliance with all HMRC requirements.
If you’re struggling to understand your cryptocurrency tax obligations or want to ensure you’re not paying more tax than necessary, chat to us by calling 0208 446 8100 or complete our online form to book a discovery meeting.
Remember, it’s never too early to get your cryptocurrency tax affairs in order – and with the CGT rates set to increase from April 2025, proper planning could save you significant amounts in the long run.
Cryptocurrency taxation FAQs
Do I need to declare small cryptocurrency transactions to HMRC?
Yes, technically, all disposals should be reported, regardless of size. However, if your total gains for the tax year are below the annual exempt amount (currently £3,000), you may not have to pay tax, but you should still keep records of all transactions.
How does HMRC know about my cryptocurrency holdings?
HMRC has been increasing its capabilities to track cryptocurrency transactions. They receive information from UK and international exchanges through information-sharing agreements. Additionally, they can use blockchain analytics tools to trace transactions. It’s always best to be transparent with your cryptocurrency activities.
I’ve lost access to my cryptocurrency wallet. Can I claim this as a loss?
HMRC may allow you to claim a “negligible value loss” if you can prove the assets have become worthless or that you’ve genuinely lost access to them permanently. You’ll need to make a formal claim and provide evidence of the loss of access.
If I’m mining cryptocurrency as a hobby, how is this taxed?
Even if you’re mining as a hobby rather than a business, the tokens received are typically subject to Income Tax at their GBP value when received. When you later sell these tokens, any change in value would be subject to Capital Gains Tax.
Can I use tax-loss harvesting with cryptocurrency investments?
Yes, you can offset capital losses against capital gains in the same tax year. If your losses exceed your gains, you can carry them forward to future tax years. However, be aware of HMRC’s “bed and breakfasting” rules, which prevent you from selling and quickly rebuying the same asset to create an artificial loss.
