What are the tax implications of engaging in crypto transactions?
When an individual buys and then sells a crypto asset, whether it is a ‘coin’ or other asset like a Non-Fungible Token (NFT), HMRC is likely to view that transaction as an investment, and any gain will be subject to Capital Gains Tax (CGT). Indeed, HMRC states in its Crypto Manual that for most individuals, in most cases, the tax in point will be CGT. The advantage for individuals is that the current standard CGT rate of 20% is lower for many people than their marginal income tax rate, plus there is an annual allowance which can exempt part of the gain from tax.
Does HMRC consider that Bitcoin is a currency?
Contrary to the widely adopted name ‘Crypto currencies’, items like Bitcoin are not currencies in HMRC’s eyes. The name relates to the way that many investors view this technology – as an alternative to their native currency. However, it is HMRC’s view that buying and selling crypto tokens is most closely paralleled with buying and selling shares, hence the use of the term “Crypto assets” and the tax treatment as an asset.
An introduction to crypto assets can be found at:
Pitfalls of crypto assets
What is a ‘Chargeable Transaction?’
A chargeable transaction includes:
- the conversion of a crypto asset to a fiat currency (e.g. £, $, € etc)
- the conversion of a crypto asset to a stablecoin (e.g. USDC, USDT etc)
- the conversion of a crypto asset to another crypto asset (e.g trading BTC to ETH)
- transferring a crypto asset to someone else’s crypto wallet
- using a crypto asset to pay for goods and services.
This covers almost every type of transaction you can make with a crypto asset, meaning that each transaction will have a profit/loss that needs to be considered for tax purposes. It is important that you record these transactions and calculate your profit/loss position at the end of each tax year.
Further information on chargeable transactions can be found at:
Crypto assets and chargeable transactions What are HMRC doing to keep pace with the rapidly growing crypto market?
HMRC obtain data from many of the large centralised exchanges such as Coinbase in order to monitor the activity of UK taxpayers in the crypto market. Similar to banking information obtained from the banks, HMRC analyses this data to identify a population of UK taxpayers who it believes may not be declaring all chargeable income and gains. It is common for HMRC to run ‘campaigns’ to reach out to this population, usually starting with the issuing of ‘nudge’ letters, inviting the taxpayer to consider their tax position.
Further information on HMRC activities in relation to crypto can be found at:
Crypto record keeping and HMRC enquiries
What about if I am a crypto trader?
If an individual conducts a lot of transactions in the same manner that a ‘trader’ would, it may be that HMRC would view any profits as income, rather than gains, and tax it that way at marginal income tax rates of up to 45%. In order for this to apply there would have to be a significant level of sophistication and pattern around the buying and selling of crypto. Casually buying and selling crypto, even on a regular basis, is unlikely to fall under Income Tax rules for trading.
Further information about trading crypto assets can be found at:
Individuals and trading crypto assets Are mining and staking rewards taxable?
Buying and selling crypto assets based on their asset value isn’t the only way to make money from crypto. There are usually incentives for staking and mining your crypto holding in order to benefit the network you hold the token for. By mining tokens or staking your tokens, the network will often pay out rewards or issue airdrops for your service. These rewards are regarded as income in the eyes of HMRC, so the value of the crypto at the time of being rewarded is regarded to be the income subject to Income Tax. Any future transactions involving the crypto paid out as a reward will be subject the Capital Gains Tax as covered above.
Further information about other crypto derived income can be found at:
Individuals and other crypto derived income 
