How Does Capital Gains Tax Work on Cryptocurrency and NFTs

How HMRC views cryptocurrency and NFTs

HMRC does not treat cryptocurrency as currency or legal tender. Instead, it is classed as an asset or investment, similar to shares or property. The same principle applies to NFTs (non-fungible tokens), which are unique digital assets stored on the blockchain.

This means that any profit you make when disposing of these assets can be subject to Capital Gains Tax.

If you trade or use cryptocurrency as part of a business, Income Tax may also apply, but most individual investors fall under the CGT regime.

What is a taxable event

A taxable event occurs whenever you “dispose” of crypto or NFTs. Disposal means doing any of the following:

Selling cryptocurrency or NFTs for fiat money such as pounds or dollars

Swapping one cryptocurrency for another, such as trading Bitcoin for Ethereum

Using crypto to buy goods or services

Gifting crypto or NFTs to someone other than your spouse or civil partner

Each disposal can trigger CGT if the asset has increased in value since you acquired it.

Simply holding crypto or NFTs, even if their value changes, does not create a taxable event. You only pay CGT when you dispose of them.

How to calculate your capital gain

Your capital gain is the difference between what you paid for the asset and what you sold it for, after deducting allowable costs.

Allowable costs include:

The amount paid to buy the crypto or NFT

Transaction fees when buying or selling

Professional fees, such as for advice or valuation

The cost of software used to manage transactions

If you sell multiple units of the same cryptocurrency, HMRC requires you to use specific cost-matching rules to calculate your gains:

Same-day rule: If you buy and sell the same crypto on the same day, those transactions are matched first.

30-day rule: If you buy more of the same crypto within 30 days of selling, those are matched next.

Section 104 pool: Any remaining holdings are averaged into a single cost pool, similar to how share accounting works.

This system ensures gains and losses are calculated fairly and prevents investors from manipulating their taxable gains through short-term trades.

Example

You bought 2 Ethereum for £1,000 each (£2,000 total). Later, you sell one Ethereum for £3,000.

Your gain is £3,000 minus £1,000 = £2,000.

If you had paid £50 in transaction fees, your net gain would be £1,950.

If your total gains in the tax year exceed your annual allowance (£3,000 in 2025 26), you must report them and pay CGT on the excess.

The tax rates on crypto and NFT gains

Cryptocurrency and NFT gains are taxed at the same rates as other capital gains.

For the 2025 26 tax year:

Basic rate taxpayers pay 10% on most assets.

Higher and additional rate taxpayers pay 20%.

You can use your £3,000 annual CGT exemption to offset part of your gains. If your total gains across all assets are below this threshold, you owe no CGT.

If you are unsure which tax band you fall into, HMRC bases it on your total taxable income plus your capital gains for the year.

What if you make a loss

If you sell crypto or NFTs for less than you paid, you can claim a capital loss. These losses can offset gains from other assets, reducing your overall CGT bill.

If your total losses exceed your gains, you can carry them forward indefinitely to offset against future gains. You must report the loss to HMRC within four years of the end of the tax year in which it occurred.

You can also make a negligible value claim if your crypto or NFT has become worthless (for example, due to a failed project or delisted token). This allows you to crystallise a loss for tax purposes without having to sell the asset.

Gifts and transfers

Gifting cryptocurrency or NFTs to your spouse or civil partner is exempt from CGT, provided you both live together. The recipient inherits your original cost basis and will pay CGT only when they eventually sell or dispose of the asset.

However, gifting to anyone else (including friends or children) counts as a disposal at market value, potentially triggering CGT.

If you donate crypto or NFTs to a registered charity, the disposal is usually exempt from CGT, and you may also claim Income Tax relief on the donation.

Record keeping requirements

HMRC expects detailed and accurate records of all crypto and NFT transactions. Because exchanges often use different systems and valuations, it is your responsibility to maintain these records.

You should keep:

Dates of each transaction

Amounts bought and sold

Transaction fees

The value in pounds at the time of each trade

Wallet addresses and exchange details

Many investors use crypto portfolio tracking software to simplify reporting and to generate summaries compatible with HMRC’s reporting rules.

Records must be kept for at least five years after the 31 January submission deadline for the relevant tax year.

How to report and pay

You report crypto and NFT gains through your Self Assessment tax return. If you do not normally file one, you can register with HMRC to do so.

When completing your return, you will need to include:

Details of each disposal (sale, trade, or gift)

The cost and sale value

Any allowable expenses

Your total capital gains and losses for the year

If your total gains are above the £3,000 exemption, or if your total asset disposals exceed £50,000, you must file a return.

Payment is due by 31 January following the end of the tax year.

What about mining, staking, and airdrops

Some crypto activities generate income rather than capital gains. HMRC treats these differently:

Mining and staking rewards are usually subject to Income Tax at the time they are received, based on their market value. When you later sell the rewards, CGT may also apply to any increase in value.

Airdrops can be taxable as income if received in exchange for an activity or service. If received freely and without conditions, they are treated as capital assets for CGT purposes when disposed of.

If you earn significant amounts from these activities, you may be classed as trading, meaning Income Tax and National Insurance could apply to your profits instead of CGT.

Strategies to reduce your crypto CGT

Make full use of your annual £3,000 CGT exemption.

Offset capital losses from previous years.

Transfer assets between spouses to use both exemptions.

Spread disposals across multiple tax years to stay within lower tax bands.

Hold crypto within tax-advantaged structures like a company if appropriate.

These strategies must always comply with HMRC’s rules. Artificially transferring or manipulating transactions purely to avoid tax may be challenged under anti-avoidance legislation.

Final thoughts

Crypto and NFT investments may be digital, but they are very much real from HMRC’s perspective. Every sale, trade, or gift can trigger Capital Gains Tax, and accurate record keeping is essential.

The same principles that apply to traditional assets also apply to digital ones — you pay tax on profit, not on total proceeds, and you can offset losses to reduce the bill.

With proper planning and awareness of tax deadlines, you can stay compliant while ensuring you only pay what you owe. As the digital asset market continues to evolve, keeping up to date with HMRC’s latest guidance will help you manage your investments efficiently and confidently.