Key takeaways
- Crypto transactions may incur capital gains, income, value-added or inheritance taxes, depending on the activity, such as selling, staking or mining.
- Cryptocurrency-related income and capital gains must be reported using SA100 and SA108 forms by the annual deadlines.
- Maintain detailed records of all crypto transactions, including values in pounds, dates and types of transactions to comply with HMRC rules.
- When you use cryptocurrency to buy goods or services, you pay VAT on the goods or services, not on the cryptocurrency used for payment.
In the UK, His Majesty’s Revenue and Customs (HMRC) has established clear criteria for reporting cryptocurrency-related income and capital gains.
However, the complexities of crypto taxation can be overwhelming for both beginners and seasoned crypto investors because several factors and plenty of calculations are involved in filing tax returns.
This step-by-step guide on how to report cryptocurrency taxes to HMRC will provide you with all the related information you need for filing your taxes.
Understanding crypto tax obligations in the UK
In the UK, crypto transactions are liable to taxation in specific circumstances. Two major categories of taxes applicable to cryptocurrencies include capital gains tax (CGT) and income tax.
Selling cryptocurrency typically triggers CGT, while earning cryptocurrency is usually taxed as ordinary income. In some scenarios, value-added tax (VAT) and inheritance tax are also included.
CGT is levied on profits earned from the sale or disposal of cryptocurrencies, and its rate varies between 10% and 20%. Income tax ranges from 20% to 45% and applies to cryptocurrencies received as payment for services rendered or as rewards from mining activities.
Did you know? Dubai has no personal income tax, exempting individuals from paying taxes on their cryptocurrency holdings, trades and profits. This tax-free environment makes Dubai an attractive location for cryptocurrency investors and businesses, regardless of residency status.
How does capital gains tax apply to crypto gains in the UK?
You pay CGT on the gains you make when disposing of your crypto. HMRC assesses CGT only on the profit realized, not the entire sale proceeds. The applicable CGT rate is determined by your overall taxable income and the specific type of asset.
The UK government offers an annual exempt amount. For the 2023/2024 tax year, this tax-free allowance was set at £6,000. The allowance for the 2024/2025 tax year is reduced to £3,000. This means you can profit from asset sales up to the exempt amount without incurring any CGT.
This table mentions the CGT rate for various income ranges:
The example below will help you understand how capital gains tax is levied:
In the 2024/2025 tax year, suppose your annual income is 90,000£, which includes an 8,000£ gain you made from selling Ether (ETH).
To find the taxable amount on this particular crypto gain, subtract the tax-free allowance from your gain:
8,000£ (gain) - 3,000£ (allowance) = 5,000£ (taxable gain).
You need to pay 20% CGT on this amount:
20% of 5,000£ = 1,000£.
You will need to pay 1,000£ as your CGT on this gain.
How does income tax apply to crypto income in the UK?
The HMRC calculates income tax rates based on income level and residency status. The tax rate applied to cryptocurrency income will vary depending on your total income and its corresponding tax bracket.
Suppose you are a self-employed web developer with an annual income of £50k. This includes a payment of £2k worth of Solana (SOL).
As this income falls within the basic rate band, you must pay 20% tax on your SOL earnings, which is 400£.
Income tax rates in Scotland
If you reside in Scotland, the income tax rates will differ:
Value Added Tax (VAT) on purchasing goods/services with crypto in the UK
In line with the Court of Justice of the European Union (CJEU) Hedqvist ruling on Oct. 22, 2015, exchanging cryptocurrencies for traditional currencies is generally exempt from VAT. The CJEU Hedqvist ruling, also known as Skatteverket v. Hedqvist, refers to a decision that when a Bitcoin exchange swaps Bitcoin for a traditional currency, the transaction is exempt from VAT.
CJEU judgments rendered before the conclusion of the Brexit transition period on Dec. 31, 2020, remain legally enforceable in UK courts. The interpretive framework of the European Court will persist within the domestic legal system.
If you use cryptocurrency to purchase goods or services, VAT applies to the goods or services, not the cryptocurrency used for payment.
For instance, if you buy a refrigerator using Polkadot (DOT), VAT will be charged on the refrigerator’s value, not the DOT used. The standard VAT rate in the UK is 20%.
Did you know? When selling cryptocurrency, your tax liability is determined by profit, holding period and tax bracket.
Inheritance tax on crypto assets in the UK
Cryptocurrency assets are subject to inheritance tax if the deceased individual’s estate is worth more than £325,000. The taxation is based on the cryptocurrency’s market value in pounds sterling at death. Various reliefs and exemptions, such as those applied to assets inherited by a spouse or donated to charity, might help decrease the inheritance tax liability.
Executors must pay the inheritance tax within six months of the individual’s death. The typical inheritance tax rate is 40%, though it may decrease to 36% if at least 10% of the estate is offered to charity.
How to report crypto to the HMRC?
The HMRC requires you to disclose cryptocurrency activity in your self-assessment tax return (SA100). You must detail any capital gains or losses in the self-assessment: capital gains summary (SA108).
Anyone who earned more than £1,000 in crypto income or £6,000 in capital gains during the fiscal year 2023-2024 must file SA100.
To report your cryptocurrency tax to the HMRC, you need to follow these steps:
- Calculate your cryptocurrency tax: Assess your crypto tax, including profits, losses, income and costs.
- Register: To file taxes online, register with the Government Gateway service. The deadline to register was Oct. 5, 2024.
- Declare crypto income: Fill out the SA100 form and declare cryptocurrency income in box 17.
- Report capital gains: To report capital gains, check box 7 and complete the SA108 form.
- Submit the form: Submit your self-assessment online by midnight on Jan. 31, 2025.
Did you know? Crypto tax record-keeping can be cumbersome. Crypto owners must meticulously track every transaction, including its type, the cryptocurrency involved, its value in pounds at the time of the transaction and the transaction date. This often involves manual record-keeping or the use of specialized software.
How to calculate your crypto taxes in the UK?
Calculating cryptocurrency taxes for a specific tax year entails assessing your capital gains, losses, and crypto income. Identify all taxable transactions, such as selling cryptocurrency for fiat, trading cryptocurrencies or using cryptocurrency to buy goods or services.
To calculate capital gains, find the difference between the selling price and the purchase cost (including permitted expenses). If the selling price is higher, it is a profit; otherwise, it is a loss. To calculate the taxable amount, deduct your annual CGT allowance (£6,000 for the tax year 2023-2024) from your total gains.
If you earned cryptocurrency through mining, a payment, staking or airdrops, declare it as crypto income and value it in pounds at receipt.
To comply with the HMRC’s rigorous record-keeping requirements, you must maintain detailed records of your cryptocurrency transactions. This includes information such as the equivalent pound value, transaction dates, cryptocurrency type, transaction nature (e.g., purchase, sale, trade), unit numbers, cumulative totals and supporting documentation from your bank or cryptocurrency wallet.
If manual record-keeping is challenging, you could use software that offers integration capabilities with your cryptocurrency exchange or wallet through APIs or CSV imports. This allows you to automatically import your transaction history, identify and rectify discrepancies, and quickly generate tax calculations for each applicable tax category.
Filing tax returns is a bit more complex if you are self-employed, as you need to be well-versed in VAT implications tied to your crypto transactions. But, if you are not self-employed, you just have to report capital gains or losses emerging from the sale or exchange of cryptocurrency.
How to register with the HMRC?
If you haven’t filed a self-assessment tax return before, you need to register first. The process differs slightly, depending on your status as a self-employed person:
For self-employed
Sign into your business tax account and add “Self Assessment.” To get your Government Gateway user ID and password, you must fill out a form online, take a printout of the form, and send it via post to the HMRC.
You will receive a notification with your Unique Taxpayer Reference (UTR) within 10 days if you are in the UK or 21 days if you are abroad. Another letter will be sent to you with the activation code for your account. Once you activate your account using the code, you can file your tax return.
For non-self-employed
If you are not self-employed, use form SA1 to register with the HMRC. Upon successful registration, you will receive your UTR within 10 days. If you are residing abroad, you will get it in 21 days.
Create an online HMRC account using your UTR and sign up for self-assessment. Once your account is activated, you can file your tax return.
Steps to report income in SA100
You need to report your cryptocurrency-related taxes on the SA100. Here are the steps to fill out the section regarding crypto income:
- In box 17, report any income derived from cryptocurrency activities.
- In box 18, report any allowable expenses associated with your crypto income.
- In box 21, provide a detailed description of the income source. For example, you could enter “Gift of 200 DOT tokens received on Aug. 7, 2023.”
- Use box 19 if you require additional space to provide further information.
- If you have any financial gains or losses, select yes in box 7. You must also complete the Self Assessment: Capital Gains Summary SA108 extra form.
Steps to crypto tax reporting in SA108
You need to report crypto capital gains and losses in SA108. You can submit SA108 along with SA100. Crypto disposal will be reported in the second section of SA108, between boxes 14 and 22. If you have any losses or made some adjustments, you must report these in section 5, between boxes 45 and 52.
Here are the steps for crypto tax reporting in SA108:
- In box 14, report the number of crypto disposals you made.
- In box 15, report the total proceeds from your crypto disposals.
- In box 16, report your total allowable costs, including your purchase price.
- In box 17, report your total capital gains before deducting losses from crypto disposals.
- In box 18, report your total capital loss from crypto disposals.
- You must fill boxes 21 and 22 only if you have used the real-time CGT service.
- In box 45, report any capital losses carried forward from previous tax years to offset capital gains in the current tax year.
- In box 46, report any income losses carried forward from previous tax years to offset income in the current tax year.
- In box 47, report any capital losses that cannot be offset against gains in the current tax year and will be carried forward to reduce future capital gains tax liabilities.
Can the HMRC track your cryptocurrency?
Many investors believe the pseudo-anonymous nature of cryptocurrencies means the HMRC cannot trace them. This is far from the truth. The HMRC has data-sharing agreements with major cryptocurrency exchanges, which provide them access to critical information such as Know Your Customer (KYC) details and transaction history.
From 2026, the HMRC will automatically receive data from crypto exchanges through the initiative led by the Organization for Economic Co-operation and Development (OECD). The OECD enables 37 democratic, market-based economies to collaborate on policy development. It also engages with over 70 non-member economies.
You should consider that crypto transactions are just pseudo-anonymous and not fully anonymous. Blockchains are publicly recorded ledgers, which means sending and receiving addresses with transactions are publicly available. As such, law enforcement agencies can track the identities of the persons behind these addresses.
Navigating crypto tax complexities in the UK
Here are answers to a few questions commonly asked by crypto investors in the UK:
What is the tax year in the UK, and the deadline for filing tax returns?
The UK tax year runs from April 6th to April 5th of the following year. The deadline for submitting your tax return varies depending on whether you file online or on paper.
The deadline for online filing of your SA100 with the HMRC is Jan. 31, 2025. If submitting a paper return, the deadline was Oct. 31, 2024.
What are tax-free crypto transactions?
A few crypto transactions don’t require you to pay tax. These include holding cryptocurrency, sending crypto from one wallet of yours to another, and giving cryptocurrency to a partner or spouse.
Is staking a collective investment scheme in the UK?
According to the Financial Services and Markets Act 2000 (Collective Investment Schemes) (Amendment) Order 2025, which is due to come into force on Jan. 31, 2025, staking is not a collective investment scheme.
According to this act, the term scheme refers to an organized structure or arrangement where participants pool their resources — typically money or assets — with the expectation of generating profits or returns. A collective investment scheme (CIS) is a regulatory framework designed to oversee such arrangements, commonly applied to mutual funds, hedge funds, or other pooled investment vehicles.
The law ends uncertainty over whether crypto asset staking services constitute a 'Collective Investment Scheme' under financial services law.
How are cryptocurrency losses taxed?
You can claim a capital loss if you sell cryptocurrency at a loss. This can offset your capital gains in the current year, lowering your tax liability.
If your total capital losses exceed your gains, you can carry the remaining losses to offset future capital gains.
Is there a way to legally reduce crypto taxes?
While you cannot completely avoid crypto taxes, you can employ strategies to minimize your tax burden. One way to do it is to stay within the £6,000 tax-free capital gains allowance by carefully timing your profit-taking.
Another strategy you could deploy is to dispose of your cryptocurrency during a year with lower overall income, resulting in a lower tax rate.
You could also donate your cryptocurrency to a registered charity for tax benefits, but if the crypto has appreciated in value, you will still incur a capital gains tax upon the donation.
What happens if you fail to file a tax return to HMRC?
Taxpayers who fail to declare cryptocurrency gains to the HMRC could face significant penalties.
These include a 20% capital gains tax plus interest and fines up to 200% of the tax owed. In serious cases, individuals may also face criminal charges and imprisonment.
Written by: Dilip Kumar Patairya