How Are Crypto Staking Rewards Taxed in the UK

Crypto staking in the UK? This guide explains exactly how staking rewards are taxed including Income Tax, Capital Gains Tax, DeFi rules and HMRC reporting requirements.

Crypto staking has become one of the most popular ways to earn passive income from digital assets although very few people understand how it is taxed in the UK. Many assume staking rewards are tax free until the crypto is sold while others believe they are taxed the same way as mining or interest. In my opinion the confusion comes from the fact that HMRC treats crypto differently depending on how it is earned, held and sold. Staking sits in the middle of several rules which makes it essential to understand the correct tax treatment.

This guide explains exactly how crypto staking rewards are taxed in the UK, whether they count as income, how Capital Gains Tax applies when you later sell the tokens, what records you must keep, how DeFi staking affects the rules and the common mistakes people make when reporting their staking income. I will also include real world examples because tax makes far more sense when you see numbers applied in practice.

By the end you will know exactly how staking rewards are taxed and what you need to report to HMRC.

How HMRC Views Crypto Staking

HMRC does not treat crypto as money. It treats it as a capital asset similar to shares. This means both Income Tax and Capital Gains Tax can apply depending on how you acquire and dispose of the tokens.

Crypto staking rewards may be treated as:

  • Income when received

  • Capital assets subject to CGT when later sold

The specific treatment depends on whether:

  • The staking activity counts as a form of income

  • The staking rewards arise from using your own capital

  • You are staking through a centralised platform or a DeFi protocol

  • The activity resembles a trade

In my opinion most individuals fall into the simple category of staking being treated as income when received and a capital gain or loss when eventually sold.

Are Crypto Staking Rewards Subject to Income Tax

Yes. HMRC generally treats staking rewards as taxable income.

The rewards are taxed:

  • As miscellaneous income

  • Based on the fair market value at the time you receive them

  • Even if you do not convert them to pounds

  • Even if the value later falls

The taxable amount is calculated in pounds at the moment the reward hits your wallet or your platform account.

You report these rewards on:

  • Self Assessment tax return

  • Section for foreign income or miscellaneous income

If your rewards are small you may be able to use the trading or miscellaneous income allowance.

When Staking Rewards Might Be Treated as Trading Income

HMRC may consider your staking activity to be trading if:

  • You are staking professionally

  • You run a large scale operation

  • You have significant organisation and automation

  • You behave like a business

  • You continually reinvest and compound for profit

If HMRC considers you to be trading then staking rewards are taxed as:

  • Trading income

  • Subject to Income Tax

  • Subject to National Insurance

Most individuals are not classified as traders. In my opinion you would need to be running a commercial-level operation before HMRC considers staking to be a trade.

Capital Gains Tax on Crypto Earned From Staking

Once staking rewards are received and taxed as income they become capital assets.

When you later dispose of them you must calculate Capital Gains Tax. A disposal includes:

  • Selling the tokens

  • Swapping them for other crypto

  • Spending them

  • Gifting them to anyone except a spouse

The gain is calculated by:

  • Using the value when you received the reward as your allowable cost

  • Subtracting this cost from the sale value

  • Paying CGT on the difference

CGT rates for individuals are:

  • 10 percent for basic rate taxpayers

  • 20 percent for higher and additional rate taxpayers

Crypto disposals count towards your annual £3,000 CGT allowance.

How Crypto Staking Works for Tax Purposes Step by Step

The tax process usually looks like this:

  • You stake your crypto

  • You earn staking rewards

  • The reward value is treated as income at the moment received

  • You must declare this income to HMRC

  • You hold the tokens as capital assets

  • You later sell or swap those tokens

  • You calculate CGT based on the increase or decrease in value

  • You pay any CGT due

In my opinion most people forget the income stage and only declare CGT. This is a common mistake.

How HMRC Values Staking Rewards

Staking rewards are valued at:

  • Their sterling value

  • At the exact time they are received

  • Based on the exchange rate for that moment

  • Not at the time you withdraw or convert

If rewards arrive multiple times per day you must value each one separately.

You can use:

  • Exchange price feeds

  • Platform statements

  • Spreadsheet tracking

  • Specialist crypto accounting tools

Accurate records are essential because HMRC expects detailed evidence.

Tax on Staking Through Centralised Platforms

If you stake through platforms such as:

  • Coinbase

  • Binance

  • Kraken

  • eToro

  • Crypto.com

your tax treatment is:

  • Income Tax when rewards are received

  • CGT when rewards are later sold

If your crypto is locked in a fixed term staking product the same rules apply.

Tax on DeFi Staking and Yield Farming

DeFi staking can involve pools, validators, liquidity tokens, lending and complex transactions. HMRC treats DeFi staking in one of three ways depending on the platform structure.

It may be treated as:

  • Income from a return on capital

  • Income from a loan

  • Income from providing services

  • Capital for CGT purposes if rewards are new tokens

  • A disposal if tokens are exchanged or locked in a smart contract

DeFi staking sometimes triggers a disposal at the moment you lock your tokens into a protocol if:

  • The protocol treats your tokens as exchanged

  • You receive a liquidity token in return

  • You lose beneficial ownership of your tokens

This is a complicated area and professional advice is often required.

Do You Pay Tax if You Reinvest Staking Rewards Automatically

Yes. Automatically restaked rewards are still taxable.

You must still declare:

  • Income when rewards are earned

  • CGT when you sell or swap the compounded tokens

Automatic reinvestment does not remove your tax obligations.

Example 1: Simple Staking Reward

  • You earn 10 SOL in staking rewards

  • At the time you receive them they are worth £20 each

  • Income = £200

  • You later sell them for £30 each

  • Capital gain = £300

  • You pay Income Tax on £200

  • You pay CGT on £300

Example 2: Reward Value Drops

  • You earn 5 ETH in staking rewards worth £1,500 each

  • Income = £7,500

  • Market crashes

  • You sell them for £900 each

  • Capital loss = £3,000

  • You offset the loss against other gains

In my opinion many people are shocked that they pay Income Tax on the higher value even if the market falls later although this is the rule.

Example 3: Reinvested Rewards

  • You earn £500 worth of ADA in rewards

  • You restake them immediately

  • The income is still taxable

  • Later you sell the ADA

  • CGT applies to the increase from the value on the day you received the reward

Example 4: DeFi Staking With Liquidity Tokens

  • You deposit 1 ETH into a DeFi pool

  • The protocol gives you a liquidity token

  • HMRC may treat this as a disposal

  • You earn rewards

  • Rewards are income

  • Later you redeem the liquidity token

  • CGT applies at every stage

This is why DeFi requires careful record keeping.

Allowances That Might Reduce the Tax on Staking Rewards

You can reduce the tax burden using:

  • The £1,000 miscellaneous income allowance

  • The £3,000 CGT annual allowance

  • Losses from other crypto disposals

  • Losses carried forward

  • Pension contributions to reduce your income tax rate

How To Report Crypto Staking to HMRC

If you earn staking income above £1,000 in a tax year you must register for Self Assessment.

You must report:

  • Total staking income

  • Date and value of each reward

  • CGT on disposals

  • Losses claimed

  • Any DeFi disposals

  • Evidence of valuations

Documents you may need:

  • Exchange statements

  • Price data

  • Wallet logs

  • Screenshots

  • CSV files from platforms

In my opinion most people underestimate the record keeping required which increases audit risk.

Common Mistakes People Make With Staking Taxes

  • Assuming staking rewards are tax free until sold

  • Declaring only capital gains and not the income

  • Using the wrong value for staking rewards

  • Not tracking reward timestamps

  • Forgetting that swaps are disposals

  • Ignoring DeFi disposals when tokens are exchanged

  • Thinking reinvested rewards are tax free

  • Not registering for Self Assessment in time

  • Not realising staking rewards can push them into a higher tax bracket

How To Stay Compliant With HMRC

To stay compliant you should:

  • Track every staking reward

  • Record the fair market value at the time received

  • Track every disposal

  • Keep copies of exchange data

  • Use crypto tax software if you have many transactions

  • Declare both income and capital gains

  • Submit your Self Assessment on time

HMRC has become increasingly active in crypto compliance and receives data from crypto exchanges. Accurate reporting is essential.

Conclusion

Crypto staking rewards are taxable in the UK. You normally pay Income Tax on the fair market value of the rewards when you receive them and Capital Gains Tax when you later sell or exchange those tokens. DeFi staking may trigger additional tax events and requires careful tracking. With proper records, accurate valuations and timely reporting you can stay compliant and avoid penalties.

In my opinion staking is one of the best passive earning strategies in crypto although you must understand the tax implications clearly before diving in. Once you know how HMRC treats staking income and capital gains the process becomes predictable and manageable.