Do I Pay Tax on Airdrops or Referral Bonuses

Introduction

Crypto airdrops and referral bonuses are common ways for blockchain projects and exchanges to attract users. While they might seem like free money, HMRC often treats these rewards as taxable income. The amount of tax you pay depends on how you received the crypto, what you did to earn it, and how much it is worth when you receive it.

In some cases, you may also pay Capital Gains Tax (CGT) later when you sell or swap the tokens if their value has changed.

What are airdrops and referral bonuses

An airdrop is when a cryptocurrency project distributes tokens to wallet holders, often to promote a new coin or reward early adopters. You might receive airdropped tokens for free or in exchange for completing simple tasks such as following a social media account or sharing a post.

A referral bonus is when a crypto exchange or platform rewards you for introducing new users. These bonuses are typically paid in crypto and depend on the new user signing up, depositing funds, or completing a trade.

Although both can appear as free gifts, HMRC does not always view them that way.

How HMRC taxes crypto airdrops

HMRC’s view depends on whether you had to do something to receive the airdrop.

1. Airdrops with no conditions

If tokens are airdropped to you without you doing anything in return, HMRC does not usually treat them as income. This means you do not pay Income Tax when you receive them.

However, the tokens are still considered part of your crypto holdings. If you later sell, swap, or spend them, you must pay Capital Gains Tax on any increase in value since you received them.

2. Airdrops received for completing tasks or services

If you had to take an action to receive the airdrop, such as promoting the project, providing services, or completing specific tasks, HMRC treats the tokens as income.

In this case, the value of the tokens at the time you receive them is subject to Income Tax and potentially National Insurance if you are self-employed or trading in crypto.

When you later sell or swap the tokens, any change in value is also subject to Capital Gains Tax.

Example

Laura receives 1,000 tokens through an airdrop worth £0.50 each. She did nothing to qualify for them, so no Income Tax is due on receipt.

Six months later, she sells them for £1 each, making a gain of £500 (£1,000 £500). She must report this as a capital gain and pay CGT if her total gains exceed the annual allowance (£3,000 for the 2024 25 tax year).

If Laura had performed marketing tasks to receive the tokens, she would have paid Income Tax on their initial £500 value and CGT only on the £500 increase in value when selling.

How referral bonuses are taxed

Referral bonuses are generally considered income because you perform an action (referring a new customer) to receive the reward.

The value of the crypto at the time you receive it counts as taxable income. You should record the market value in pounds and include it in your annual tax return.

If the crypto increases in value and you later sell or exchange it, you must also calculate and report any capital gain.

Example

Tom refers a friend to a crypto exchange and receives £200 worth of Bitcoin as a referral bonus. He pays Income Tax on £200 as miscellaneous income in the tax year he receives it.

A year later, he sells the Bitcoin for £350. He reports the £150 gain and pays CGT on the profit above his annual allowance.

How to calculate the taxable amount

To calculate the value for Income Tax, use the fair market value of the tokens in pounds sterling at the time they are added to your wallet. Most exchanges record this automatically, but you should double-check and keep your own records.

For CGT, your cost basis is the value you used for Income Tax. The difference between that amount and the sale price determines your gain or loss.

Reporting your taxes

You must declare both Income Tax and Capital Gains Tax on your Self Assessment tax return if your total taxable income or gains exceed HMRC’s thresholds.

For most people, you report:

Income Tax on airdrops or referral bonuses as miscellaneous income.

Capital Gains Tax when you sell or swap crypto.

If you do not usually file a Self Assessment return but receive significant crypto income, you must register with HMRC by 5 October following the end of the tax year.

Record keeping

HMRC requires all crypto investors and traders to keep detailed records, including:

The date and time you received the airdrop or referral bonus.

The type and quantity of tokens.

The value in pounds at the time of receipt.

The date and value of any subsequent disposals.

Exchange or wallet addresses and transaction IDs.

Accurate records are essential for working out both Income Tax and Capital Gains Tax correctly. You must keep these records for at least five years after the Self Assessment deadline for the relevant tax year.

Common mistakes to avoid

Treating airdrops as tax free when you completed a task to earn them.

Forgetting to declare referral bonuses as income.

Failing to record the market value in pounds when you received the tokens.

Ignoring CGT when you sell tokens that were initially received as airdrops or bonuses.

Mixing personal and business crypto accounts if you are self-employed.

Example scenario

Ben receives an airdrop of new tokens worth £1,000 after promoting a project online. Because he performed a task, the £1,000 is taxable as income. He adds it to his annual tax return.

Later, the tokens rise in value, and he sells them for £1,600. The £600 profit is a capital gain, which he must also report and pay CGT on if his total gains exceed £3,000 for the year.

Conclusion

Airdrops and referral bonuses can create both Income Tax and Capital Gains Tax liabilities, depending on how you received and used the tokens. If you did something to earn the crypto, it is taxable as income. If it was received with no conditions, tax only applies later when you sell or spend it.

To stay compliant, always record the date, value, and reason for receiving crypto rewards. HMRC treats crypto assets like any other form of property, so understanding when tax applies helps you avoid penalties and unexpected bills. If your crypto activity is frequent or complex, consider seeking advice from an accountant experienced in digital assets and UK tax law.