Cryptoassets and tax

Updated on 23 March 2022

If you invest in cryptoassets then you may make taxable gains or profits, or losses. You might also earn taxable income in the form of cryptoassets for certain activities. On this page, we explain the basics from a UK tax perspective.

Investing in cryptoassets is high-risk. This page is intended solely to provide information about the UK tax position for individuals who have cryptoassets. It is not financial advice.

Illustration of digital currencies

⚠️ The information on this page assumes that you do not claim any means-tested benefits, such as tax credits or universal credit. If you claim means-tested benefits, see the final question.

What are cryptoassets?

Cryptoassets are a type of digital asset. The most common examples are Bitcoin and Ethereum, which are also called cryptocurrency, but there are hundreds of different types.

Non-fungible tokens (NFTs) are another type of cryptoasset. There are many articles online explaining what NFTs are, such as on the BBC and in the Financial Times.

Cryptoassets (including cryptocurrency) are different from ‘normal’ (sometimes called ‘fiat’, or government-backed) currency like pounds sterling, or US dollars. They are also different from stocks and shares. But cryptoassets do share some features of both of these types of assets. For example, like ‘normal’ currency, cryptoassets can sometimes be used as a form of payment. Like stocks and shares, the value (in ‘normal’ currency) of cryptoassets can go up or down.

HMRC do not consider cryptoassets to be currency or money, or that buying or selling cryptoassets is gambling. This means that profits or gains from buying and selling cryptoassets are taxable.

This page does not aim to explain how cryptoassets work. However, we explain what you need to know to work out the tax consequences in most cases.

Why might I have to pay tax on (and tell HMRC about) my cryptoassets?

Depending on what you do and how you get money from cryptoassets, you might need to tell HMRC and pay tax. In some situations, you must tell HMRC about your cryptoasset activities and pay tax by certain deadlines. If you do not do this, HMRC might fine you.

There are a number of ways you might get money from cryptoassets:

  • You can buy cryptoassets using ‘normal’ currency and then later sell them (or otherwise ‘dispose of’ them, such as using them to buy things) at a gain or profit.
  • You can earn cryptoassets by playing a part in maintaining the system on which that particular cryptoasset is based. For example, you might be involved in mining or staking, depending on the structure of the cryptoasset.
  • You might be involved in lending or borrowing cryptoassets. This is called decentralised finance (‘DeFi’) and includes ‘providing liquidity’ (also called staking) where you lend your cryptoassets to a platform which then lends the cryptoassets on. We do not cover this in detail on this page, but HMRC have produced some guidance specifically on DeFi.
  • You might earn ‘free’ cryptoassets via an airdrop in return for a service or simply because you own some other type of cryptoasset.
  • Your employer might give you cryptoassets in return for your employment duties.

Do I have to pay tax when I dispose of cryptoassets for a gain or profit?

In general, yes.

‘Disposing of’ cryptoassets includes not just selling them for ‘normal’ currency but also using them to buy things, such as other types of cryptoasset or even a cup of coffee, or giving them away. In other words, ‘disposing of’ includes any transaction which results in you no longer having some or all of that cryptoasset.

The question of what tax you may have to pay is not straightforward. You will need to:

  1. work out how the gain or profit is treated for tax purposes;
  2. calculate what the gain or profit is; and
  3. consider whether and how you report that gain or profit to HMRC.

You may not owe any tax if the amount is within a tax-free allowance. But even if you do not owe any tax, you might still need to report the gain or profit to HMRC.

Note that if you are resident and domiciled in the UK, then you are liable to UK tax on your worldwide income and gains.

If you are resident but non-domiciled, your foreign income and gains can sometimes be excluded from UK tax if they are not remitted to the UK. For more information about how this applies in the context of cryptoassets, see below What if I am non-domiciled?.

If you are non-resident in the UK, see below What if I am not resident in the UK?.

How is the profit or gain treated?

If you are disposing of cryptoassets then, other than in exceptional circumstances, HMRC would normally consider that you are making capital disposals (gains or losses) rather than earning income (profits or losses) from a trade. For more information, see below How do I work out if I am ‘trading’ in cryptoassets?.

How do I calculate the gain and report it to HMRC?

In general, gains on cryptoassets are calculated in the same way as gains on shares. Different types of cryptoasset (for example, Bitcoin, Ether, Dogecoin, etc) are treated as separate assets, so you need to calculate the gain on each type of cryptoasset separately.

You will need to calculate the market value of the cryptoasset into pounds sterling. If so, you should convert the base cost and the proceeds into pounds sterling separately. You do not work out the gain in, for example, US dollars and then convert the gain in US dollars into pounds sterling.

Example

Felix is resident and domiciled in the UK. He has a bank account in US dollars for his cryptoasset investments. On 21 July 2021, he bought 2 Ethereum for $3,573.02.

A few months later, Felix thought that Bitcoin would give him a better return on his investment, so he then exchanged these 2 Ethereum for 0.15201 Bitcoin on 8 November 2021. The market value of the 2 Ethereum at that date was $9,623.78.

Exchanging one type of cryptoasset for another is a disposal for UK capital gains tax purposes. To work out the gain, Felix needs to convert each US dollar amount into pounds sterling (GBP) on the relevant date. You can use a website like exchangerates.org.uk to find out the rates on a given day.

Felix works out the relevant amounts in pounds sterling as follows:

Date

Amount (USD)

Exchange rate

Amount (GBP)

21 July 2021

$3,573.02

0.72913

£2,605.19

8 November 2021

$9,623.78

0.73730

£7,095.61


Felix has a gain of £4,490.42 (£7,095.61 less £2,605.19) which arises when he disposes of his Ethereum holding in exchange for Bitcoin.

You may deduct transaction fees directly relating to the acquisition or disposal of the cryptoasset in question.

If you have made several transactions in the year, perhaps involving several different types of cryptoasset, then the calculations can become extremely complicated. There are online platforms and software which offer to do these calculations for you. However, if you use one of these platforms or software to generate a tax report then you remain responsible for taking reasonable care over your tax affairs. HMRC’s guidance in this area is evolving and there is no guarantee that the report generated will be in line with HMRC’s latest position. You should consider getting professional support.


Tip: You can avoid having to calculate any gain if all of the following apply:

  • your buying and selling activities are not considered to be trading;
  • the total value of cryptoassets you have disposed of in a year does not exceed your annual exempt amount for capital gains tax (£12,300 for 2021/22 and 2022/23);
  • you have made no other capital disposals in the tax year; and
  • you do not otherwise need to complete a Self Assessment tax return for the tax year.

In this case, you will not need to report your cryptoasset disposals to HMRC, unless you wish to claim a loss.

See below if you claim means-tested benefits, such as tax credits or universal credit.


If you have made a loss and you wish to claim relief for this against your future capital gains, then you need to calculate that loss and notify it to HMRC.

For further information, see Capital gains tax reporting and record-keeping.

Can I get tax relief if I sell cryptoassets and make a capital loss, or if they become worthless?

In general, you can only deduct a capital loss from capital gains arising in the same tax year or a future tax year. As explained above, to do this you will need to claim the loss by reporting it to HMRC.

You cannot offset capital losses arising on the disposal of cryptoassets against your income.

It may also be possible to claim a capital loss if your cryptoasset has become worthless or otherwise has negligible value.

For more information, see Capital losses.

What happens if the private key to my cryptoasset wallet is lost or stolen?

If the private key to your cryptoasset wallet is lost, then HMRC say they do not consider this to be a disposal by itself. You may have lost access to your cryptoassets, but you still own them.

Similarly, if the private key to your cryptoasset wallet is stolen (and the underlying cryptoassets are then stolen or transferred), HMRC say this is not treated as a disposal either because, technically, you still own the underlying asset in the sense that you still have a legal title to it.

However, either case may provide grounds to make a negligible value claim if the value of your interest in your cryptoasset holding has become worthless. You would need to demonstrate that there is no realistic prospect of recovering your cryptoassets. If HMRC accept the claim, then you would be treated as having disposed of and re-acquired the cryptoassets for no value. This would allow you to claim relief for a capital loss.

Do I have to pay tax when I receive cryptoassets?

If you receive cryptoassets, you need to ask why you have received them to understand if you owe any income tax on the value received. In general, if you have received cryptoassets as a form of reward then they will usually be taxable. On the other hand, if you receive cryptoassets as an unrequested gift without doing anything in return then they will generally not be in scope of income tax. However, when making a gift, the person making it should consider if there are any inheritance tax or capital gains tax consequences.

We discuss below some situations in which income tax might be payable on cryptoassets received as a form of reward.

Mining

For certain types of cryptoassets, such as Bitcoin, you can earn rewards in that cryptoasset by ‘mining’. This is a reward for devoting time and energy (in the form of computing power) to solving complex mathematical puzzles. The answers to these puzzles are used to securely maintain a list of all transactions involving that cryptoasset. This helps to make that list effectively impossible to manipulate fraudulently, which in turn allows trust in the system and helps maintain that system’s value.

HMRC say that income from mining is treated as trading income if the activity is of the nature of a trade. Otherwise, the income is treated as miscellaneous income. For more information, see below How do I work out if I am ‘trading’ in cryptoassets?.

In either case, the income is taxable. However, you can use the trading allowance against both trading income and miscellaneous income. Therefore, if your total trading and miscellaneous income is no more than £1,000 in a tax year, then you may not need to worry about the distinction. This is because if you rely on the trading allowance the income is not reportable in either case for tax purposes.

If your total trading and miscellaneous income is more than £1,000, or if you decide not to use the trading allowance, then you will need to decide whether the income is trading income or miscellaneous income. Not only are the two types of income are reported differently, but miscellaneous income is not liable to Class 4 National Insurance contributions and is treated as unearned income for student loan repayment purposes. There are also different income tax and National Insurance rules for each type of income if you make a loss.

You will need to value the cryptoasset income you receive from mining by converting it to pounds sterling using the exchange rate on the date you receive it. Daily exchange rates for cryptocurrency can be found on websites such as coinbase.

Staking

On some types of cryptoasset you can earn ‘staking’ rewards in that cryptoasset. This is a bit like earning interest on money in a bank account in that you are rewarded for locking away your cryptoassets for a certain period. However, the rewards may not be guaranteed or even defined.

Unlike interest, income from staking is not treated as savings income by HMRC. When you ‘stake’ your cryptoasset wealth, it is used to help make further transactions in that cryptocurrency in a similar way to mining.

HMRC consider that income from staking is generally taxable either as trading income or miscellaneous income, like income from mining. See below .

However, in certain contexts it is also possible for a return on staking cryptoassets to be treated as a capital receipt, depending on the circumstances. You should also be aware that staking cryptoassets in such a way where you transfer ownership of them to someone else, such as a lending platform or a private individual, will be treated by HMRC as a disposal for capital gains tax purposes. For more information, see HMRC’s technical manual. We recommend that you seek professional advice in this situation.

Airdrops

Airdrops are when someone who has a cryptoasset wallet receives some of a certain kind of cryptoasset for some reason.

The airdrop may be completely ‘free’ – that is, you do not have to do anything in return for receiving it. The reason behind this may be marketing or advertising. For example, new kinds of cryptoasset can be given away for free to raise awareness of them.

However, sometimes, airdrops can be made in return for doing something. This might be answering surveys or providing some other service, such as participating in a social media campaign.

The different reasons for the airdrop can affect the tax treatment.

HMRC’s view is that if you receive airdropped cryptoassets in return for, or in expectation of, a service then it is taxable. The value of the airdropped cryptoassets would be treated either as miscellaneous income or trading income, depending on the circumstances. See below How do I work out if I am ‘trading’ in cryptoassets?.


Tip: You should not have to report to HMRC or pay income tax on the cryptoassets you have earned (other than from employment) if both of the following apply:

  • the total value of cryptocurrency you have earned in a tax year does not exceed the trading and miscellaneous income allowance of £1,000 per tax year; and
  • you do not have any other trading or miscellaneous income in the year.

See below if you claim means-tested benefits, such as tax credits or universal credit.


Employment income

If your employer gives you cryptoassets which can be easily exchanged for cash (Bitcoin would be one example), then your employer would usually need to account for income tax and National Insurance on the value of the cryptoassets you receive. They would either deduct this from your wages or you will need to reimburse them separately.

Where the cryptoasset cannot be easily exchanged for cash, you would not normally need to pay employee National Insurance on the amount. Your employer should either deduct the tax from you under PAYE or report the amount on a form P11D.

If your employer has not deducted tax from you under PAYE and HMRC are unable to collect the tax from you via an adjustment to your tax code or other means, you may need to pay your own income tax directly to HMRC via Self Assessment. In this case, you should be aware that the usual deadline to register is by 5 October after the end of the tax year.

What records should I keep for tax if I have cryptoassets?

If you rely on the trading allowance and the miscellaneous or trading income that you earn through cryptoassets is no more than £1,000 per tax year, you should keep records to show this is the case. This would include your transaction history, the market values of the cryptoassets in pounds sterling at the relevant dates, and relevant calculations.

If you decide not to use the trading allowance, then you will be able to deduct expenses against the miscellaneous income or trading income (for example, the cost of computers and electricity used for dedicated mining activity should be deductible against trading income). You should keep business records of these expenses.

If you make capital investments and disposals in cryptoassets, see What records do I need to keep for CGT?. See also GOV.UK.

What if I make a loss on my trading income or miscellaneous income from cryptoassets?

How you can use a loss on your activities depends on whether the income is treated as miscellaneous income or trading income:

  • If you make a loss on miscellaneous income then the loss can be carried forward to be deducted from miscellaneous income in the future.
  • If you make a loss on trading income then there are different ways you can use the loss (subject to some restrictions).

How do I work out if I am ‘trading’ in cryptoassets?

If you are buying cryptoassets and then disposing of them, HMRC would normally treat these as capital investments and disposals rather than saying your activities as a whole are a ‘trade’. However, if you are making frequent, organised trades in cryptoassets with some degree of sophistication, then there is a chance that you might be running a trade in cryptoassets – that is, you might be self-employed or running a business as a cryptoassets trader. This would mean that income tax and National Insurance would be payable on your profits, rather than capital gains tax. For more information, see HMRC’s manual.

Note that even though you might be ‘trading’ cryptoassets through some kind of exchange (or otherwise), and that transactions might be described as ‘trades’, this does not necessarily mean that your activities as a whole are considered a ‘trade’ or that you are treated as being self-employed.

If you are receiving cryptoassets as income (other than employment income), the question is usually whether that income is treated as ‘trading’ income or ‘miscellaneous’ income. In some cases, it may be neither. HMRC say that whether such activities amount to a trade depends on factors such as the scale of activity, organisation, risk and commerciality.

In general, to determine whether you are trading, you need to consider whether your activities have the badges of trade.

Note that it is up to you to work out which tax treatment applies to your activities and report them to HMRC when you need to.

Summary of possible tax and National Insurance treatments of cryptoassets

The possible tax positions for the different types of activities are summarised below. The guidance elsewhere on this page aims to help you work out which box you fall into, depending on your exact activities:

 

Capital gains

Trading income

Miscellaneous income

Employment income

Not taxable

Tax

Capital gains tax

Income tax

Income tax

Income tax

N/A

National Insurance

N/A

Class 2/4

N/A

Employee Class 1*

N/A

Relevant allowances

Annual exempt amount

Personal allowance, trading and miscellaneous income allowance

Personal allowance, trading and miscellaneous income allowance

Personal allowance

N/A

Activity

         

Buying and disposing of cryptoassets

Y
(in most cases)

Y
(in exceptional circumstances)

     

Mining

 

Y

Y

   

Staking

Y

Y

Y

   

Airdrops

 

Y

Y

 

Y

Employment duties

     

Y

 

* if the cryptoasset can be easily exchanged for cash

How does being non-domiciled in the UK affect tax on cryptoassets?

Capital gains

If you are non-domiciled in the UK (and not deemed UK domiciled) and you are making capital disposals of cryptoassets, then you need to know the location (‘situs’) of the cryptoasset. This is because UK resident, non-domiciled individuals are able to access the remittance basis of taxation for their non-UK gains. Broadly, this means that such taxpayers can exclude foreign gains from UK tax if the proceeds are kept offshore – that is, not brought to the UK. We provide more information at How are foreign income and gains taxed?.

Inheritance tax

For inheritance tax purposes, non-domiciled individuals are only in scope of UK inheritance tax on their UK assets.

How do I find the location of cryptoassets?

Because a cryptoasset is not a physical asset then its location is hard to define. HMRC’s view is that the location of cryptoassets follows the tax residence of the beneficial owner.

For example, if you are resident in the UK but you are domiciled in France and you own Bitcoin (whose value is usually denominated in US dollars), then your Bitcoin holding will be treated by HMRC as a UK asset. This would mean that if you make a disposal, any gain is potentially taxable in the UK and cannot be excluded from UK tax even if the remittance basis applies.

Cryptoasset income

If you are earning income in cryptoassets (for example, by mining or staking), and you are not domiciled in the UK, then although income from a foreign ‘source’ would be treated as foreign income, it would not be possible to exclude that income from UK tax where the remittance basis applies. This is because the cryptoassets would be treated as being already located in the UK for a UK resident taxpayer, so the income would therefore be treated as automatically remitted to the UK.

How does being not resident in the UK affect tax on cryptoassets?

If you are not resident in the UK, then in general you are not liable to UK capital gains tax on disposals of cryptoassets. However, see Capital gains tax for individuals not resident in the UK, which explains an exception if you are non-resident in the UK only temporarily.

If you are earning income from cryptoassets (for example, by mining or staking), and you are not resident in the UK, then you are only liable to UK income tax on your trading profits if they arise from:

  • a trade carried on wholly in the UK; or
  • the part of your trade which is carried on in the UK.

If the income is treated as miscellaneous income, then you are only liable to UK income tax on this income if it arises from a source in the UK.

Therefore, income from mining, staking and airdrops may not be taxable in the UK if you are non-resident. However, HMRC have not published guidance on this point and we would recommend taking professional advice.

If you are non-resident and there is any UK connection to your activities, you will need to consider all the facts and circumstances to work out whether it is either from a trade carried on in the UK or from a UK source. For example, even though you are non-resident, the income may be taxable in the UK if the activities are carried out while physically in the UK or if the computer equipment used is physically located in the UK. In case of any doubt, we recommend you seek professional advice.

Where can I find more information?

GOV.UK has guidance on the tax consequences of selling (disposing of) or receiving cryptoassets.

For more detailed information, you can look at HMRC’s Cryptoassets Manual.

For more information on cryptoassets generally, you may also be interested in the information published by the Bank of England and the Financial Conduct Authority.

If you require further support, please see our Getting Help page.

How are cryptoassets treated for means-tested benefits?

If you are claiming means-tested benefits, such as tax credits or universal credit, you will need to consider how your cryptoasset activity is treated for these benefits separately. The treatment may differ from the treatment for tax purposes.

If you have, or have had, cryptoassets then we recommend you contact either DWP (if you claim universal credit) or HMRC (if you claim tax credits) to confirm how any cryptoassets, income or gains are to be reported.

Note that the trading allowance is not available for universal credit purposes.

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