Do I Pay Tax on Airdrops or Referral Bonuses

At Towerstone, we provide specialist crypto accountancy services for UK investors and businesses. We have written this article to explain how HMRC treats airdrops, helping you understand the tax and reporting position.

From experience, crypto airdrops and referral bonuses cause more tax confusion than almost any other crypto activity. I regularly see people either ignore them entirely because it was free money, or panic and assume HMRC will tax them heavily the moment the tokens hit their wallet. In my opinion, both reactions are understandable, because the rules are not intuitive and are often explained badly online.

The reality is more nuanced. Sometimes you do pay tax on airdrops and referral bonuses, sometimes you do not, and sometimes tax arises later rather than at the point you receive the tokens. What matters is why you received the crypto, what you did to get it, and what you do with it afterwards.

In this article, I am going to explain in clear UK terms how airdrops and referral bonuses are taxed, when income tax applies, when capital gains tax applies, and where I most often see people making mistakes. Everything here reflects current UK guidance and real world experience dealing with crypto Self Assessment returns.

By the end, you should understand exactly when tax is due, how HMRC expects it to be reported, and how to keep records that protect you if questions are raised later.

How HMRC views cryptocurrency in the UK

Before looking specifically at airdrops and referral bonuses, it is important to understand HMRC’s starting position.

HMRC does not treat crypto as money. Instead, it treats it as a cryptoasset. In most personal situations, crypto is taxed in a similar way to shares or other investments, but the tax outcome depends on the activity involved rather than the label attached to it.

Guidance is issued by HM Revenue and Customs and published via GOV.UK.

From experience, HMRC always focuses on three core questions:

Why did you receive the crypto

Did you do anything in return for it

What happened to it after you received it

Those answers determine whether income tax applies, capital gains tax applies, or both.

What is an airdrop in practical terms?

An airdrop is where crypto tokens are distributed to users, often at no upfront cost. Airdrops are usually part of marketing strategies, protocol launches, or attempts to decentralise ownership.

Common real world examples include:

Receiving tokens because you held another crypto at a certain date

Receiving governance tokens for being an early user of a protocol

Receiving promotional tokens sent automatically to wallet holders

Receiving tokens after interacting with a blockchain application

From experience, people often assume that because they did not pay for the tokens, no tax can apply. In my opinion, that assumption is where most problems begin.

What is a referral bonus?

A referral bonus is simpler to define.

A referral bonus arises when you receive crypto, cash, or credits because you introduced someone else to a platform, exchange, or service.

Examples include:

An exchange paying you crypto for referring a friend

A platform giving you tokens when a referral trades

Receiving credits that can be converted into crypto

In my experience, referral bonuses are much more likely to be taxed as income, because there is usually a clear link between action and reward.

The most important distinction HMRC makes

The single most important distinction HMRC makes is whether the crypto was received in return for doing something.

HMRC looks at whether:

You performed a task

You provided a service

You promoted a platform

You took action to qualify

If the answer is yes, HMRC is far more likely to treat the receipt as taxable income.

If the answer is no, the tax treatment may be different.

In my opinion, this distinction explains nearly every outcome in this area.

When airdrops are not taxed as income

Some airdrops are not taxed as income when you receive them.

This is usually the case where:

The airdrop was unsolicited

You did not perform any action to receive it

It was not linked to a trade, business, or service

For example, if you simply held a token and a completely separate project decided to airdrop new tokens to holders without requiring you to do anything, HMRC may accept that this is not taxable income at the point of receipt.

In this situation:

No income tax is due when the tokens arrive

The tokens still enter your crypto records

Capital gains tax may apply if and when you dispose of them

From experience, this scenario exists, but it is less common than many people assume.

When airdrops are taxed as income

Many airdrops are taxable as income.

Income tax usually applies where the airdrop is connected to an action or activity you undertook.

From experience, income tax is likely where:

You interacted with a platform to qualify

You used a protocol early and were rewarded

You staked, voted, provided liquidity, or tested features

You completed tasks to receive tokens

In these cases, HMRC sees the airdrop as something you earned rather than something you were randomly given.

In my opinion, if effort or participation was required, it is safest to assume income tax applies unless there is a very strong argument otherwise.

How income tax on airdrops works in practice

Where an airdrop is taxable as income, the amount taxed is the market value of the tokens in pounds at the time you received them.

This means:

Income tax applies even if you do not sell the tokens

The value is fixed at the point of receipt

You must include it on your tax return

From experience, this is where people get caught out. They receive tokens worth a meaningful amount, do nothing with them, and then face an unexpected tax bill months later.

How referral bonuses are taxed

Referral bonuses are almost always treated as taxable income.

In my professional opinion, referral bonuses are one of the clearest examples of crypto income.

This is because:

There is a clear action and reward

It resembles commission or promotional income

The bonus exists because of your involvement

Whether the reward is paid in crypto or cash makes no difference. Income tax applies based on the value received.

From experience, people who regularly earn referral bonuses may even fall within trading income rules rather than miscellaneous income.

Does capital gains tax apply as well?

Yes, and this is an area many people misunderstand.

If you pay income tax when you receive an airdrop or referral bonus, that does not mean the tax story ends there.

Capital gains tax may apply later if:

You sell the tokens

You swap them for another crypto

You use them to buy goods or services

The initial value taxed as income becomes your cost basis for capital gains tax.

Any increase in value after receipt may be subject to capital gains tax.

In my opinion, this double layer is the most overlooked part of crypto tax.

What if the tokens had little or no value?

Sometimes airdropped tokens are illiquid or have no obvious market value at the time you receive them.

In this case:

Income tax may be nil or very low

You still record the receipt

Future value changes are tracked for capital gains

From experience, HMRC expects a reasonable valuation based on available data, not perfection.

What if I never claimed the airdrop?

If tokens are sent automatically to your wallet, HMRC may still view them as received once you have access to them.

If you actively claim an airdrop, this strengthens the argument that income tax applies.

In my opinion, actively claiming tokens is usually seen as taking ownership.

What if I immediately sell the tokens?

Selling immediately does not remove the income tax charge.

From experience, this often results in:

Income tax on receipt

Capital gains tax or loss on disposal

If the price moves between receipt and sale, both taxes may be relevant.

How HMRC expects you to keep records

Good record keeping is essential.

HMRC expects you to keep records showing:

Date of receipt

Token type and quantity

Market value in GBP

Source of the airdrop or referral

Any actions required to qualify

Date and value of disposal if sold

From experience, missing records are the main reason crypto tax enquiries become difficult.

Are airdrops taxable if I am not a trader?

Yes.

Tax does not depend on whether you consider yourself a trader or an investor.

It depends on the nature of the receipt.

Even long term holders can receive taxable income through airdrops and bonuses.

Airdrops linked to staking and DeFi activity

This is one of the most complex areas.

In many cases:

Staking rewards are taxable as income

Yield farming rewards are taxable as income

Governance rewards may be taxable as income

From experience, HMRC usually sees these as earned rewards rather than gifts.

Common myths I see regularly

Some of the most common misunderstandings include:

Free crypto is never taxable

Tax only applies when tokens are sold

HMRC cannot track airdrops

Small amounts do not matter

In my opinion, these myths cause far more issues than the tax itself.

What happens if you do not report airdrops or bonuses?

If HMRC later identifies unreported income:

Additional tax may be assessed

Interest may be charged

Penalties may apply

From experience, HMRC is much more lenient where errors are disclosed voluntarily rather than discovered later.

How this fits into Self Assessment

Airdrops and referral bonuses are usually reported via Self Assessment.

They may be reported as:

Other taxable income

Trading income

Part of a wider crypto income disclosure

Capital gains are reported separately.

In my opinion, mixing income and gains correctly is one of the most important steps in getting crypto tax right.

Practical advice from experience

If you have received airdrops or referral bonuses, my practical advice is:

Assume HMRC will look at why you received them

Record values at the time of receipt

Do not ignore small amounts if activity is frequent

Be cautious with DeFi and incentive schemes

Get advice if activity becomes regular or significant

Crypto tax is manageable when approached methodically.

Where this leaves you

So, do you pay tax on airdrops or referral bonuses in the UK?

Sometimes yes, sometimes no, but very often more than people expect.

If tokens are received without any action or effort, income tax may not apply at receipt, but capital gains tax may apply later. If tokens are received in return for participation, promotion, or referral activity, income tax usually applies when they are received, with capital gains tax potentially applying again later.

From experience, the real risk is not paying too much tax, but paying it at the wrong time or failing to report it at all. In my professional opinion, understanding why you received the crypto is the key to understanding how it is taxed.

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