HMRC treats cryptocurrency as property, not currency. This means buying, selling, swapping, and spending crypto can trigger Capital Gains Tax (CGT) obligations, and receiving crypto as income (from mining, staking, or employment) is subject to Income Tax. Ignoring crypto on your tax return can lead to penalties and interest.
When Capital Gains Tax Applies
You have a CGT liability when you dispose of cryptocurrency. A disposal includes:
- Selling crypto for GBP or another fiat currency
- Swapping one crypto for another (e.g., Bitcoin for Ethereum)
- Spending crypto to buy goods or services
- Gifting crypto to someone other than your spouse or civil partner
You do not have a disposal when you transfer crypto between your own wallets.
CGT Rates and the Annual Exempt Amount
For 2025/26, the CGT annual exempt amount is £3,000. Gains below this threshold are tax-free. Above it:
| Taxpayer Status | CGT Rate on Crypto |
|---|---|
| Basic Rate taxpayer | 18% |
| Higher/Additional Rate taxpayer | 24% |
Note that crypto gains are added on top of your other income to determine which band they fall into. A Basic Rate taxpayer with large crypto gains may find part of those gains taxed at 24%.
How to Calculate Your Gain
HMRC requires the use of Section 104 pooling for crypto. This means you calculate an average cost basis across all units of each crypto asset, rather than tracking individual purchases.
Example: You buy 1 BTC at £20,000, then another 1 BTC at £30,000. Your pool is 2 BTC with a total cost of £50,000, giving an average cost of £25,000 per BTC. If you sell 1 BTC for £40,000, your gain is £40,000 – £25,000 = £15,000.
There are special matching rules that override pooling:
- Same-day rule: Crypto bought and sold on the same day is matched first
- Bed and breakfasting (30-day) rule: If you sell and repurchase the same crypto within 30 days, the sale is matched with the repurchase
When Income Tax Applies
Certain crypto activities are treated as income rather than capital gains:
- Mining: The market value of mined coins when received is taxable income
- Staking rewards: Income Tax applies on the value when received
- Airdrops: Taxable as income if received in return for a service; otherwise potentially CGT on disposal
- Employer payments in crypto: Taxed as employment income, subject to PAYE and NI
- DeFi lending interest: Generally treated as income
If you are trading crypto as a business (frequent, high-volume, with a profit motive), HMRC may treat all gains as trading income rather than capital gains, which means Income Tax and National Insurance apply.
Reporting to HMRC
If you owe CGT on crypto, you must report it on your Self Assessment tax return. There is a dedicated section for crypto assets. HMRC has access to data from UK crypto exchanges and has sent nudge letters to thousands of taxpayers it suspects have unreported gains.
Allowable Costs
You can deduct the following from your gains:
- The purchase price of the crypto
- Transaction fees (exchange fees, gas fees, network fees)
- Costs of advertising if selling directly
You cannot deduct the cost of hardware for personal mining rigs.
Key Takeaway
Every crypto swap, sale, or spend is potentially a taxable event. Keep detailed records of all transactions — dates, amounts, GBP values, and fees — from the start. Reconstructing years of trading history later is painful and error-prone.