Do I Have to Pay Tax on Cryptocurrency in the UK

Cryptocurrency might feel new and decentralised, but HMRC treats it like any other taxable asset. This guide explains when you must pay tax on crypto in the UK, how HMRC classifies different types of transactions, what records you must keep and in my opinion why most crypto investors end up owing tax without realising it.

Crypto has moved from a niche interest to a mainstream investment. Whether you are buying Bitcoin, trading altcoins, staking tokens or receiving crypto payments, HMRC wants to know about it. The idea that crypto is anonymous or tax free is a myth. HMRC receives data directly from major crypto exchanges and expects individuals to report gains, income and disposals correctly.

This article explains everything you need to know to stay compliant and avoid penalties.

1. Do You Have to Pay Tax on Cryptocurrency in the UK

Yes. HMRC treats cryptocurrency as a taxable asset. You may need to pay:

  • Capital Gains Tax when you dispose of crypto

  • Income Tax and National Insurance when you earn crypto through work, mining, staking or rewards

Crypto is not treated as currency. It is treated similarly to shares or other investments.

In my opinion most people underestimate how many everyday crypto transactions count as disposals for tax.

2. When Crypto Is Subject to Capital Gains Tax

You pay Capital Gains Tax (CGT) when you dispose of cryptocurrency. A disposal is not just selling. HMRC considers all the following to be taxable events:

  • selling crypto for pounds

  • swapping one crypto for another

  • using crypto to buy something

  • gifting crypto to anyone other than a spouse

  • transferring crypto to someone as payment

  • cashing out from an exchange

  • converting crypto into stablecoins

Many people assume swapping tokens is tax free, but HMRC treats every trade as selling one asset and buying another, which creates a gain or a loss.

Example

You buy £2,000 of ETH.
You later swap it for £3,000 of SOL.
You have a £1,000 gain.
CGT applies even though you never converted it to cash.

3. How Capital Gains Tax Works for Crypto

CGT applies to the profit you make, not the total sale value.

You calculate:

  1. Sale value

  2. Minus allowable costs

  3. Minus your CGT allowance

  4. Tax is paid on the remainder

Allowable costs include

  • purchase price

  • exchange transaction fees

  • transfer fees

  • software costs used for tracking

  • professional fees for crypto tax reports

The yearly CGT allowance for 2024 to 2025 is £3,000. Gains above this are taxed at:

  • 10 percent for basic rate taxpayers

  • 20 percent for higher and additional rate taxpayers

If your gain pushes you into a higher bracket, the appropriate CGT rate applies.

In my opinion

With the CGT allowance becoming so small, many regular crypto traders will owe tax even on modest gains.

4. When Crypto Is Subject to Income Tax

Crypto becomes income when you receive it as a reward or in exchange for work or services.

You may need to pay Income Tax (and National Insurance if applicable) on:

  • mining rewards

  • staking rewards

  • airdrops

  • play to earn activities

  • earning crypto from freelance work

  • referral bonuses

  • liquidity pool rewards

  • DeFi yield rewards depending on structure

HMRC looks at whether you received the crypto “by virtue of your efforts”. If so, Income Tax applies.

How it works

You pay Income Tax on the fair market value of the crypto on the day you receive it.
You then pay CGT later if that crypto increases in value and you dispose of it.

This means you could pay two kinds of tax on the same asset:

  • once as income

  • once as a capital gain

In my opinion

This is one of the most frustrating parts of the crypto tax system for investors.

5. Crypto Mining and Taxes

Mining rewards are treated as taxable income.

You may also need to consider whether HMRC views your mining as:

  • a hobby
    or

  • a trade

This affects National Insurance and allowable expenses.

Mining equipment, electricity and pool fees may be deductible.

6. Crypto Staking and Taxes

Staking rewards are also treated as income.
You pay Income Tax on the value when received.

If you later sell the staked tokens, you may owe CGT on any gain.

7. Airdrops and Taxes

Most airdrops are treated as taxable income, unless:

  • you did nothing to earn them

  • they were unsolicited

  • they were genuinely random

Even then you may owe CGT when you dispose of the tokens.

8. Paying for Goods or Services in Crypto

If you buy something using crypto you create a disposal.
This means CGT applies.

Example

You use Bitcoin worth £500 to buy a laptop.
You originally bought that Bitcoin for £200.
You have a £300 gain.
CGT applies.

Regardless of how small the purchase is, the gain must be reported.

9. Giving Crypto as a Gift

Gifting crypto to anyone other than a spouse counts as a disposal.

CGT may apply on the gain, even if:

  • you did not sell the crypto

  • you received nothing in return

This surprises many people.

Giving crypto to your spouse or civil partner is tax free.

10. What Records You Must Keep for Crypto

You must keep detailed records of every crypto transaction.
HMRC expects:

  • dates of each buy

  • dates of each sale or swap

  • amounts

  • market values

  • wallet addresses

  • transaction fees

  • exchange statements

  • staking reward receipts

  • mining logs

Crypto platforms can close or lose data, so in my opinion you should download your transaction history at least once a year.

11. How HMRC Knows About Your Crypto

Some people still assume crypto is private. It is not.

HMRC receives data from:

  • major UK exchanges

  • international exchanges

  • payment processors

  • bank transfers

  • blockchain analytics firms

If you cash out into a UK bank account your bank must flag unusual activity.

HMRC has sent thousands of letters to crypto users asking them to check their tax position.

In my opinion hiding crypto from HMRC is not an option. The blockchain may be transparent forever.

12. What Happens If You Do Not Declare Crypto Tax

Failure to declare crypto gains or income can result in:

  • penalties

  • interest

  • backdated tax

  • formal investigation

  • potential criminal prosecution in extreme cases

Penalties increase if HMRC believes non disclosure was deliberate.

13. When You Must File a Tax Return

You must file a Self Assessment return if:

  • your total gains exceed £3,000

  • your total transactions exceed £50,000

  • you owe Income Tax on rewards

  • you have taxable crypto income

  • HMRC sends you a notice requiring a return

Even if your gain is below the allowance, large disposals must still be reported.

14. How Losses Work for Crypto

If you sell crypto for less than you paid, this creates a capital loss.

You can use losses to:

  • reduce gains in the same year

  • carry forward losses to future years

You must report losses within four years or you lose the ability to use them.

Losses from rug pulls or exchange collapse may also be allowed, depending on evidence.

15. Special Rules for DeFi Transactions

HMRC has specific guidance on:

  • lending

  • borrowing

  • liquidity pools

  • yield farming

  • staking

  • derivatives

Each type of DeFi transaction may trigger a disposal or income event.

In my opinion DeFi tax is the most confusing area. Most people do not understand they are making disposals every time they change pool positions.

16. Crypto Inside ISAs or Pensions

Crypto is not currently allowed in:

  • Stocks and Shares ISAs

  • Lifetime ISAs

  • Junior ISAs

  • SIPPs

You cannot shelter crypto from CGT in these wrappers.

Stablecoins or crypto ETNs are also excluded from ISAs.

17. Real World Examples

Example 1: Crypto trader with multiple swaps

Sam makes 200 trades swapping coins.
He thinks CGT applies only when he cashes out.
In fact each swap is a disposal.
He owes CGT on every gain.

Example 2: Staking rewards

Lucy stakes tokens and earns £500 in rewards.
She pays Income Tax on £500 at her marginal rate.
Later she sells the rewards for £700 and pays CGT on the £200 gain.

Example 3: Small purchases

Tom buys a coffee with Bitcoin worth £8.
He originally paid £4 for that Bitcoin.
He has a £4 gain.
Technically CGT applies.

Example 4: Gifting to a friend

Emma gifts £1,000 worth of crypto to her friend.
She bought it for £400.
She must report the £600 gain.

18. In My Opinion: Why Crypto Investors Need Good Tax Planning

In my opinion crypto tax is harder than most other investment taxes because:

  • disposals happen constantly

  • values fluctuate minute to minute

  • exchanges can lose data

  • some platforms disappear

  • DeFi creates complicated chains of transactions

  • the CGT allowance is now tiny

Most people only realise they owe tax when they try to cash out.

Keeping good records and understanding the rules is essential.

Conclusion

You do have to pay tax on cryptocurrency in the UK. Crypto is not anonymous or exempt. HMRC taxes gains under Capital Gains Tax and taxes rewards under Income Tax. Almost every crypto transaction is treated as a disposal, including swaps, spending coins or gifting them. Good records are essential, and failing to report can lead to penalties.

In my opinion crypto tax is manageable once you understand the rules, but the system is unforgiving if you ignore it. Whether you trade occasionally or invest heavily, keeping accurate records and declaring gains is the safest approach.