In this update we guide you through what you need to know about the current rules on crypto tax in the UK and how much you will be taxed.
If you are involved in crypto investing and need help to get your crypto tax right, please get in touch and our experienced team can discuss how we can help.
How is crypto taxed in the UK?
Crypto is either subject to Capital Gains Tax (if you’re making a gain from selling, swapping or spending crypto) or Income Tax (if you’re seen to be making an income). We look at each in further details below.
Crypto is not taxed in the UK if you are:
- Buying in GBP
- Holding crypto
- Transferring crypto between your own wallets or exchanges
- Donating crypto to charity
- Gifting crypto to your spouse
Paying Capital Gains Tax on crypto
When you dispose of your crypto, HMRC charges tax on cryptocurrency in the same way as gains on other investments. This means gains are subject to capital gains tax, which taxpayers report on a Self Assessment tax return when they make more than the annual exemption amount of £12,300.
Capital Gains Tax is due on the disposal of cryptoassets and this could include:
- selling cryptoassets for money
- exchanging one type of cryptoasset for another
- using cryptoassets for purchases
- giving cryptoassets away (excluding gifting to spouse)
Only gains are taxed, so you’ll only pay tax on crypto whenever you’ve made a profit.
How much Capital Gains Tax do I pay on crypto?
The amount of Capital Gains Tax you will need to pay depends on how much you earn.
The rates for 2022-23 are:
| Tax rate | Taxable income |
|---|---|
| 10% | Basic Rate Income Band (up to £50,270) |
| 20% | Higher Rate Income Band (up to £150,000) |
| 20% | Additional Rate Income Band (more than £150,000) |
To calculate the Capital Gains Tax to pay:
- Work out the Cost Basis – First you’ll need to add the original price that you paid to buy your crypto and any transaction fees you incurred – this is known as the Cost Basis. HMRC has very specific rules on what can be claimed as a transaction fee, and you can see further guidance on GOV.UK here. For example, transfer fees paid to your wallet provider or crypto exchange in crypto rather than GBP, is not included in this list and is classed as a disposable and liable to Capital Gains Tax.
- You can then subtract the Cost Basis from the price you sold (or intend to sell) your crypto for. If you have a profit you will need to pay Capital Gains Tax on this. However, if you made a loss, please jump to step 4.
- You can then deduct your capital gains allowance of £12,300 from your profit (if you haven’t already applied this during the same tax year) and apply your tax rate based on the table above to calculate your Capital Gains Tax charge.
- If you made a loss you won’t need to pay Capital Gains Tax, but you should keep good records and register your losses with HMRC, as they can be offset against other capital gains or carried forward to be offset against future gains. What’s more you can carry forward losses indefinitely until they are fully utilised. However, there is a four-year window to register your loss after which it will be lost, so it is always advisable to register them in the year they were incurred. HMRC rules state that lost or stolen crypto is not considered a capital loss, but it may be possible in some exceptions to make a negligible value claim and later claim a capital loss.
Leave this work to an experienced tax advisor – Contact us to discuss how we can take care of reporting your crypto Capital Gains Tax.
How much Income Tax do I pay on crypto?
Crypto is taxed as income when it comes from any of the following sources:
- Getting paid in crypto – known as ‘money’s worth’ and is also subject to National Insurance.
- Staking rewards
- Mining tokens
- Airdrops – in most instances.
If you need to pay Income Tax on the money you made from crypto, it will count towards your Income Tax. The UK Income Tax Bands for 2022-23 are:
| Tax rate | Taxable income | Band |
|---|---|---|
| 0% | Up to £12,570 | Personal allowance |
| 20% | £12,571 – £50,270 | Basic rate |
| 40% | £50,271 – £150,000 | Higher rate |
| 45% | £150,000+ | Additional rate |
To work out the rate of tax that you will need to pay, you must add your crypto income to your regular income, then apply the tax rates shown in the table above.
Please note that this means you only pay the specified tax rate on that portion of income. For example, if your income puts you in the 40% tax bracket, then you only pay 40% tax on the segment of earnings in that Income Tax band. For the lower part of your earnings, you’ll still pay the appropriate 20% or 0%.
Also note, that in some instances, you’ll also need to make National Insurance contributions on income from crypto too.
Leave this work to an experienced tax advisor – Contact us to discuss how we can take care of reporting your crypto income via your Self Assessment tax return.
What crypto records do I need to keep for HMRC?
Many exchanges do not keep detailed information about crypto transactions so HMRC has said that the onus is on the individual to keep their own records for each cryptoasset transaction. These must include:
- the type of cryptoasset
- date of the transaction
- if they were bought or sold
- number of units involved
- value of the transaction in GBP (as at the date of the transaction)
- cumulative total of the investment units held
- bank statements and wallet addresses, as these are needed for an enquiry or review.
Reporting crypto taxes to HMRC
The UK financial year runs from the 6th April to the 5th April the following year.
You will need to declare your crypto taxes in your Self Assessment tax return, which must be filed by the following 31st January (for online returns).
For example: For a crypto capital gain incurred on 1st June 2022 it must be reported in your Self Assessment tax return filed by 31st January 2024 for online returns (or 31st October 2023 for paper returns).
Once you’ve filed your Self Assessment Tax Return with HMRC reporting your crypto gains and/or income – HMRC will confirm how much tax you owe on your crypto and when this must be paid.
Crypto tax for businesses and companies
If you are running a business or company that involves cryptocurrency transactions (such as buying, selling, mining or selling goods in exchange for crypto), then the rules are more complex.
It may also mean that you are liable to pay a number of different taxes such as Capital Gains Tax, Income Tax, Corporation Tax, Stamp Duties and even VAT depending on the type of transaction.
Please note that HMRC may decide to treat you as a business even if you are an individual if your level of activity is comparable to a business.
HMRC’s detailed cryptoassets manual has further details on the tax treatment of business activities that involve cryptocurrency.
Is HMRC targeting crypto investors?
In October 2021, HMRC announced that it will begin issuing ‘nudge’ letters to crypto investors which will warn them to check their crypto transactions have been properly reported and that the correct tax is being paid.
HMRC has the ability to gather a full list of cryptocurrency holders by sending data requests to UK-based cryptocurrency exchanges and other financial institutions.
Investors should come forward to declare their cryptocurrency income, as those who are later found to have misreported their crypto holdings could be at risk of penalty fines or prosecution.
Where can I find further information?
This information is correct at the date of publication, however these tax rules may well evolve as the sector develops. You can view HMRC’s latest Cryptoassets Manual at GOV.UK here.
Self Assessment tax return service for crypto
If you are involved in crypto investing and you need help to get your crypto tax right please get in touch and our experienced team can provide a quotation for completing your tax return.
Oscar heads our tax department and provides advice on tax structuring, planning and compliance services to entrepreneurs and their businesses.