How Are NFTs Taxed in the UK?

Buying, selling, or creating NFTs in the UK can trigger tax liabilities. Learn when Capital Gains Tax or Income Tax applies and how to stay compliant with HMRC.

Introduction

Non-fungible tokens (NFTs) have become one of the most talked-about digital assets in recent years. From digital artwork to virtual collectibles, NFTs have given creators and investors new ways to trade and profit online. However, as with cryptocurrency, the question of tax soon follows: how are NFTs taxed in the UK?

HMRC treats NFTs as digital assets that can be subject to Capital Gains Tax (CGT), Income Tax, or even Corporation Tax depending on how they are used. This article explains how NFT taxation works in the UK, who needs to pay tax, and how to report it correctly.

What Are NFTs?

NFTs are unique digital tokens stored on a blockchain, which represent ownership or proof of authenticity of a digital item such as artwork, music, collectibles, or virtual property. Unlike cryptocurrencies such as Bitcoin or Ethereum, NFTs are non-fungible, meaning each one is distinct and cannot be exchanged on a one-to-one basis.

While NFTs are digital in nature, HMRC treats them as assets rather than currency. This means they are subject to the same tax principles as other assets like shares, art, or property when sold or traded.

How HMRC Taxes NFTs

The tax you pay on NFTs depends on how you use them and whether your activities are classed as personal investment, trading, or business activity.

There are three main situations in which tax may apply:

  1. Buying and selling NFTs as an investment

  2. Creating and selling NFTs as an artist or developer

  3. Earning income from NFT-related activities, such as royalties or staking

Each is treated differently under UK tax law.

NFTs as an Investment Capital Gains Tax

If you buy NFTs as a personal investment and later sell them for a profit, you may be liable for Capital Gains Tax (CGT).

You pay CGT on the gain made when disposing of an NFT. A disposal includes:

  • Selling an NFT for cryptocurrency or cash

  • Exchanging one NFT for another

  • Giving an NFT away to someone other than your spouse or civil partner

Your gain is the difference between the sale price (or market value) and the amount you originally paid, including any associated costs such as transaction fees or gas charges.

For the 2024 25 tax year, everyone has an annual CGT allowance of £3,000. Gains above this amount are taxed at:

  • 10% for basic-rate taxpayers

  • 20% for higher- or additional-rate taxpayers

Example:
You buy an NFT for £1,000 in 2023 and sell it a year later for £6,000. Your gain is £5,000. After applying your £3,000 allowance, you pay CGT on the remaining £2,000. If you are a higher-rate taxpayer, you would owe £400 in tax.

NFTs Created and Sold by Artists Income Tax

If you create NFTs as an artist, developer, or musician and sell them, HMRC generally treats your earnings as income, not capital gains.

This means you must pay Income Tax (and possibly National Insurance) on the profits. The taxable amount is the total income received from NFT sales minus any allowable expenses, such as:

  • Platform or marketplace fees

  • Gas fees for minting NFTs

  • Marketing and promotion costs

  • Software and equipment used to create the NFTs

If NFT creation and sales form part of your regular business activity, you may also need to register as self-employed and pay tax through Self Assessment.

If your NFT business grows substantially, you might also be liable for VAT, depending on turnover and the nature of your sales.

Income from NFT Royalties or Staking

Some NFTs generate ongoing income, such as royalties from secondary market resales or rewards from staking. HMRC considers these payments to be income, so they are subject to Income Tax at your usual rate.

For businesses or creators, these earnings must be included in annual accounts and declared on your Self Assessment or company tax return.

NFTs Received as Gifts or Payment

If you receive an NFT as a gift, you may not owe tax immediately. However, if you later sell or transfer it, any increase in value since the date of receipt may be subject to CGT.

If you receive NFTs as payment for goods or services (for example, as a freelancer or artist), HMRC treats them as income. The market value of the NFT in pounds sterling at the time of receipt is used to calculate your taxable income.

Losses on NFTs

If you sell an NFT at a loss, you can offset the loss against other capital gains in the same tax year or carry it forward to offset future gains.

To claim a loss, you must keep clear evidence of the purchase price, sale price, and transaction details. If an NFT becomes worthless, you can apply for a negligible value claim with HMRC to recognise the loss officially.

How to Report NFT Tax to HMRC

If you owe tax on NFTs, you must report and pay it correctly:

  • For Capital Gains Tax: Report through your Self Assessment or the CGT real-time reporting service by 31 January after the tax year ends.

  • For Income Tax: Include NFT-related income on your Self Assessment tax return under trading or self-employment income.

  • For Companies: NFT income or gains must be reported in the company’s Corporation Tax return.

Record-Keeping Requirements

HMRC requires accurate records for all NFT transactions. You should keep:

  • Purchase and sale dates

  • Amounts paid and received (in pounds sterling)

  • Wallet addresses and transaction IDs

  • Market value at the time of each transaction

  • Details of any expenses or fees

Blockchain records alone are not sufficient; you must record the pound sterling value of each transaction at the time it occurs.

Example Scenario

Alex buys several NFTs for a total of £10,000 and sells them later for £25,000. He makes a gain of £15,000. After deducting his £3,000 CGT allowance, he is taxed on £12,000 at 20%, resulting in a £2,400 tax bill.

Meanwhile, Mia, a digital artist, earns £30,000 from selling her own NFTs in a year. She deducts £5,000 in costs for software, platform fees, and marketing. She pays Income Tax and National Insurance on her £25,000 net profit as self-employed income.

The Role of an Accountant

NFT taxation can become complex, especially if you have multiple wallets, international transactions, or both trading and creative income. An accountant or crypto tax specialist can help you:

  • Determine whether you owe Income Tax or Capital Gains Tax.

  • Calculate taxable gains and losses accurately.

  • Record NFT values correctly in pounds sterling.

  • File your Self Assessment or company tax return on time.

  • Plan transactions to reduce tax liability.

Conclusion

NFTs are taxed in the UK based on how you use them. Investors pay Capital Gains Tax on profits from buying and selling, while creators and developers pay Income Tax on sales and royalties. HMRC requires detailed record keeping and full reporting of NFT-related transactions.

With the growing popularity of NFTs, it is essential to understand your tax obligations and plan accordingly. Keeping good records and seeking professional advice can help you stay compliant while maximising your tax efficiency.