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The UK tax implications of Crypto
The UK tax implication of Crypto is dependent on the nature and use of the Crypto.
Most Crypto transactions will either result in a gain or a loss for someone and therefore will have tax implications.
This article will give you a quick summary of the UK tax.
When do I have to pay tax on crypto?
There are various situations in which your crypto transactions are taxable, some of which are:
Income – You have to pay income tax on crypto if you receive it as an income i.e. in exchange for providing a service etc., and you will be subject to both income tax and national insurance contributions. You may be able to deduct some business expenses from your profits before they are taxed
Capital gains- You pay tax if you make gains from buying and selling Crypto. Also, when you gift a crypto, it is considered that you have disposed an asset, therefore you’ll have to calculate market value of the cryptoasset at the time of gift and deduct purchase price to arrive at the gains value.
Mining – If you mine crypto even if as a hobby, any income you make from mining must be declared to the HMRC and subject to income tax. You may be able to deduct some business expenses from your profits before they are taxed. If you are running a mining business, your income is added to your trading profits and is subject to income tax.
Airdrops – If you earned airdropped tokens as a reward as part of a trade or mining, this is subject to income tax. However, if you receive airdropped tokens and don’t do anything in exchange, or they are not part of your crypto trade or business, then you don’t need to pay tax on its receipt. However, the disposal of a token received through an airdrop may result in a chargeable gain for Capital Gains Tax, even if it’s not chargeable to Income Tax when it’s received.
When is crypto exempt from UK tax?
You don’t have to pay tax on your crypto when holding it in your digital wallet or transferring it between wallets. Equally, gifting crypto to a spouse is exempt from tax. If you receive airdropped tokens and don’t do anything in return, you won’t have to pay tax on it.
How are crypto gains taxed?
You could pay two types of tax: Income tax and Capital Gains tax. The tax you pay depends on the kind of crypto transactions you make. If you receive crypto as an income (for instance, salary from employer in crypto or crypto payment for any services provided to your clients), then you will be subject to Income tax.
If you sell, buy, spend, or gift crypto, you will be subject to Capital Gains tax.
Income tax
HMRC sets a personal allowance of £12,570 for Income tax. If you receive crypto as your income, you only start to pay tax when you make more than £12,570 per tax year. The amount of tax you pay depends on the tax band you fall into. These are the tax bands for the current tax year, which apply to residents in England, Northern Ireland, and Wales:
| Band | Taxable income | Tax rate |
| Personal allowance | Up to £12,570 is not taxable | 0% |
| Basic rate | £12,571 to £50,270 | 20% |
| Higher rate | £50,271 to £150,000 | 40% |
| Additional rate | over £150,000 | 45% |
Capital gains tax
Similar to the Income tax, there is a £12,300 allowance for Capital Gains tax for the tax year of 2022/2023. If your profit from selling crypto is over this tax-free limit, you may have to pay tax. To calculate how much tax you need to pay, firstly deduct your tax-free allowance, and add the remaining profits to your yearly taxable income. If your income and capital gains together are less or equal to £50,270 (basic rate- see the table above), you will have to pay 10% on your gains, or 18% if these gains come from residential properties. Anything above the basic rate will be taxed at 20%. Note that the UK tax year runs from the 6th of April to the 5th of April of the following year.
How do I report crypto capital gains and losses to HMRC?
It’s critical that you report both gains and losses on your tax return. When you report crypto losses, you can offset any losses against any profits you made during the tax year and therefore reduce your tax bill. You can also carry those losses forward and offset them against future gains.
To declare your crypto gains and losses to HMRC for the tax year 2021/2022, you need to submit an online Self-Assessment form by the 31st of January 2023. Alternatively, you can request a paper form and submit it by the 31st of October 2022. You will need to register for Self-Assessment in advance. In this form, you must include all the crypto transactions you made throughout the tax year and report all the gains and losses in detail. HMRC will then calculate how much tax you owe. Consider delivering the Self-Assessment form as early as possible, as you will need to pay any tax due by the 31st of January.
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