What Happens If My Crypto Exchange Is Based Outside the UK

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

From experience, this is one of the most common questions I hear from people who are active in cryptocurrency. Many UK investors use exchanges based overseas, sometimes without even realising it, and there is a widespread belief that using a non UK exchange somehow changes the tax position or keeps activity outside HMRC’s reach. In my opinion, that belief is understandable, but it is also one of the most dangerous assumptions you can make with crypto.

In this article I want to explain clearly what actually happens if your crypto exchange is based outside the UK, how HMRC treats overseas exchanges, whether tax rules change, what reporting obligations still apply, and where the real risks and planning opportunities sit. Everything here is grounded in current UK tax practice and regulatory expectations, particularly those set by HM Revenue and Customs and the oversight framework of the Financial Conduct Authority.

This is intentionally detailed. In my opinion, overseas exchanges are not a loophole, they are simply another layer of complexity that needs to be understood properly.

The Most Important Point Up Front

From experience, the single most important thing to understand is this:

UK tax is based on you, not on where the exchange is located.

If you are UK tax resident, HMRC generally taxes you on your worldwide income and gains. That means:

• It does not matter if the exchange is in the UK, Europe, the US, or elsewhere

• It does not matter where the servers are located

• It does not matter where the company is incorporated

What matters is that you are UK resident and you are the one making the transactions.

In my opinion, once this point is clear, many myths around overseas exchanges fall away.

Why People Use Overseas Crypto Exchanges

From experience, people use non UK exchanges for many reasons, including:

• Access to a wider range of tokens

• Lower trading fees

• Advanced trading features

• Early access to new projects

• Historical reasons, having opened accounts years ago

None of these reasons are wrong in themselves, but they do not change the UK tax treatment.

How HMRC Views Overseas Crypto Exchanges

HMRC does not draw a distinction between UK based and overseas exchanges when it comes to tax.

From HMRC’s perspective:

• Cryptocurrency is an asset

• Transactions create taxable events

• Location of the exchange is largely irrelevant

Whether you trade on a UK registered platform or an overseas exchange, the same tax principles apply.

In my opinion, this is where many people are caught out, because they expect different rules to apply internationally.

Capital Gains Tax Does Not Change

If you are UK tax resident, Capital Gains Tax applies to crypto disposals regardless of where the exchange is based.

This includes:

• Selling crypto for pounds or other fiat

• Swapping one crypto for another

• Spending crypto

• Gifting crypto to someone other than a spouse or civil partner

From experience, HMRC is interested in the transaction itself, not the platform used to execute it.

Income Tax Does Not Change Either

The same applies to crypto income.

If you receive crypto as:

• Mining rewards

• Staking income

• Airdrops in certain circumstances

• Payment for services

Income Tax applies based on the GBP value at receipt, regardless of whether the exchange or protocol is overseas.

In my opinion, calling something “offshore” does not change its nature for UK tax purposes.

The Myth of “Offshore = Not Taxable”

I want to address this directly, because it comes up constantly.

Using an overseas crypto exchange does not mean:

• Gains are tax free

• Transactions are invisible

• Reporting is optional

• HMRC has no access

From experience, this myth often comes from outdated ideas about offshore bank accounts, which do not translate neatly to crypto.

Worldwide Taxation for UK Residents

Most UK residents are taxed on a worldwide basis.

This means HMRC expects you to declare:

• UK income and gains

• Overseas income and gains

• Crypto activity wherever it occurs

The only major exception is where someone legitimately uses the remittance basis, and even then, crypto complicates matters significantly.

In my opinion, most people using overseas exchanges are still fully within the UK tax net.

Does the Exchange Location Affect Reporting?

No, not in terms of whether you report.

You still report crypto in exactly the same way on your Self Assessment:

• Capital gains go in the Capital Gains section

• Crypto income goes in the income sections

• Losses can be claimed

• Allowances still apply

The exchange location does not change the form or the process.

Does the Exchange Location Affect Valuation?

This is where practical issues can arise.

When using overseas exchanges:

• Trading pairs may not be in GBP

• Prices may be quoted in USD or stablecoins

• Time zone differences may affect pricing

HMRC expects values to be converted into GBP at the time of each transaction.

From experience, this is an area where people often make mistakes, especially when dealing with multiple time zones and volatile prices.

Currency Conversion and GBP Values

For UK tax purposes:

• All crypto transactions must be valued in GBP

• The value is taken at the date and time of the transaction

If your overseas exchange trades in USD, USDT, or another currency, you still need to convert that value to GBP.

In my opinion, this is one of the most time consuming aspects of crypto tax for overseas exchanges.

Record Keeping Becomes Even More Important

Using an overseas exchange usually means HMRC will not receive neat, UK friendly reports.

From experience, this makes record keeping absolutely critical.

You should keep:

• Full transaction histories

• Dates and times of trades

• Trading pairs used

• GBP conversions at transaction time

• Wallet addresses and transfers

In my opinion, poor records combined with overseas exchanges is the fastest route to problems later.

Are Overseas Exchanges Reported to HMRC?

This is a question I am asked a lot.

While overseas exchanges may not automatically report to HMRC in the same way as UK platforms, that does not mean HMRC has no visibility.

HMRC uses:

• Data sharing agreements

• Information requests

• Open source blockchain analysis

• Targeted compliance campaigns

From experience, HMRC is far more capable in this area than many people assume.

Blockchain Transparency Changes Everything

Unlike traditional offshore accounts, crypto transactions live on public blockchains.

This means:

• Transactions are permanent

• Wallet movements are traceable

• Exchange deposits and withdrawals can be identified

In my opinion, the idea that overseas exchanges provide anonymity is largely outdated.

What About FCA Registration?

Some people worry that using an exchange not registered with the FCA changes their tax obligations.

It does not.

FCA registration relates to regulatory oversight and consumer protection, not tax liability.

From a tax perspective:

• HMRC does not care whether an exchange is FCA registered

• They care about your transactions and gains

That said, using unregulated exchanges can carry other risks, just not tax exemptions.

Overseas Exchanges and the Remittance Basis

This is a complex area and one where assumptions are dangerous.

Some individuals who are UK resident but non domiciled may use the remittance basis of taxation.

In theory, overseas assets and gains can be taxed differently under this regime.

However, crypto does not fit neatly into traditional remittance concepts.

From experience:

• Crypto is not cash in a foreign bank account

• Bringing crypto into the UK is not always clear cut

• HMRC scrutiny in this area is high

In my opinion, anyone relying on remittance basis arguments with crypto should take specialist advice.

Common Mistakes I See With Overseas Exchanges

From experience, the most common mistakes include:

• Only reporting cash withdrawals to UK banks

• Ignoring crypto to crypto swaps

• Failing to convert values to GBP correctly

• Assuming HMRC cannot see overseas platforms

• Poor or missing transaction records

These mistakes often result in underreporting rather than overreporting.

What Happens If HMRC Challenges You?

If HMRC queries your crypto activity, the fact that you used an overseas exchange does not protect you.

HMRC may ask for:

• Full transaction histories

• Exchange account statements

• Wallet addresses

• Explanations of activity

From experience, people who have kept good records and reported honestly usually resolve enquiries smoothly.

Those who relied on assumptions often struggle.

Voluntary Disclosure and Overseas Exchanges

Many people come to me after realising they should have declared crypto activity from overseas exchanges in earlier years.

From experience, HMRC is far more favourable when individuals:

• Come forward voluntarily

• Correct mistakes proactively

• Provide clear records

In my opinion, waiting for HMRC to contact you is rarely the best strategy.

Planning Opportunities Still Exist

Using overseas exchanges does not remove tax, but planning opportunities still exist.

A crypto accountant can help with:

• Timing disposals across tax years

• Using Capital Gains Tax allowances

• Offsetting losses

• Structuring spouse transfers

• Coordinating crypto with wider income planning

In my opinion, planning is about timing and structure, not location.

Behavioural Changes That Reduce Risk

From experience, people using overseas exchanges can reduce tax risk by:

• Reducing unnecessary trading

• Avoiding frequent swaps

• Keeping clear records from day one

• Understanding tax consequences before acting

Often, the biggest savings come from fewer taxable events, not clever calculations.

When Overseas Exchanges Increase Risk

In my opinion, overseas exchanges increase risk where:

• Records are incomplete

• Platforms shut down or restrict access

• Data exports are unreliable

• Language and time zone barriers exist

These risks are practical rather than legal, but they matter just as much.

Practical Steps I Recommend From Experience

If you use a crypto exchange based outside the UK, I recommend:

• Assuming UK tax rules still apply

• Keeping full transaction records

• Converting all values to GBP

• Reporting all disposals and income

• Taking advice if activity is complex

These steps dramatically reduce stress and risk.

Is There Any Advantage at All?

From a tax perspective alone, in my opinion there is usually no advantage to using an overseas exchange.

Any advantages tend to be about:

• Access

• Features

• Fees

Not tax.

If someone is choosing an overseas exchange purely for perceived tax benefits, they are almost certainly misunderstanding the rules.

Key Takeaways

So what happens if your crypto exchange is based outside the UK? In simple terms, very little changes from a tax perspective.

If you are UK tax resident, HMRC still expects you to declare and pay tax on your crypto activity, regardless of where the exchange is located. Capital Gains Tax and Income Tax apply in the same way, reporting requirements are the same, and record keeping becomes even more important.

From experience, the biggest risk with overseas exchanges is not higher tax, it is misunderstanding and underreporting. The biggest opportunity is not secrecy, it is proper planning.

In my opinion, overseas exchanges should be treated as a practical choice, not a tax strategy. Once you accept that, the focus shifts to doing things correctly, keeping good records, and using the UK tax system to your advantage in a compliant and sustainable way.

If you would like to explore related investing and crypto guidance, you may find What happens to cryptocurrency when someone dies and What is DeFi and how is it taxed in the UK useful. For broader investing context, visit our stocks and shares guidance hub.