The Ultimate Crypto Tax Guide for United Kingdom - 2023

Have you been trading or investing in crypto assets in the UK? Are you unsure of your tax liabilities on crypto transactions? 

Then this is the guide for you. We’ve covered different possible crypto transactions and how the tax implications on these transactions are applied to the UK market. Read on to know more. 

We’ve covered topics from tax on capital gains to mining and staking, how to pay taxes most efficiently, and lastly why you need a software to calculate the taxes on your crypto transactions. 

Currently, all individuals need to pay tax on all crypto assets transactions in the UK. You need to know what transaction tax needs to be paid and how to report it under Self Assessment Taxation. 

While this can be daunting and may seem like an uphill task, we’ve broken down the concepts for you in a very simple format. 

HM Revenue and Customs (HMRC), the regulating body responsible for tax, payments, and customs treats crypto as a capital asset when gains are observed on it. 

All crypto transactions will come under Capital Gains Tax or Income Tax. There are no separate regulations for crypto asset taxations, but they need to be included in your tax filing. 

We’ve covered this in-depth as you keep reading on. 

If you’re earning a profit on crypto transactions as an investor, then you need to pay tax under the Capital Gain Tax head. If you’re earning profits as a trader, then profit will be treated as trading income and national insurance will also become payable on that. 

If a source of your income is in the form of crypto assets, the crypto earned is treated like an income and tax needs to be paid under Income Tax. 

Depending on the nature of the crypto income, they will be taxed accordingly. But don’t worry, we’ll help you identify your transactions easily. 

Before we delve into what the crypto income tax rates are, one needs to know the Income Tax Bands in the UK. 

While we’ve covered this above, we’ll reiterate these slabs for better understanding.

A taxpayer in the UK needs to start by figuring out what income tax band they fall under. Post that, add the additional income via crypto means. If taxpayers still fall under the tax band, that’s the tax rate individuals will pay on their overall income. 

If the additional crypto income pushes you into the next tax band, that is the income on which tax needs to be paid. 

Tax rates in the UK are not a flat tax rate but a progressive one on taxpayers’ earnings. 

For example,

If an individual's taxable income is £50,000. Till the amount of £12,570, the income is tax-free. From £12,501 to £50,000 the tax is 20%. It’s not a flat rate of 20% on the entire income of £50,000. This rule does not apply to those earning above £125,140. 

This is also applicable to all English and Welsh taxpayers. Scottish taxpayers have an ever so slightly different Income Tax Band. 

Moving on, we’re going to discuss the different scenarios where crypto assets are received as a form of income and how the tax on them will be applied in the UK. 

In the UK, these are the situations where crypto is taxed under Income Tax:

• Receiving crypto as a form of payment or ‘moneys worth’ 
• Staking Rewards 
• Mining Tokens 
• Airdrops 

Here’s a very short refresher on what crypto mining is. The process of verifying transactions on a Blockchain network is called Mining. And for every transaction that is verified successfully, miners receive crypto tokens as a reward. 

The tokens awarded as a result of a successful mining activity will be taxable as income for both individuals as well as businesses. The income will be calculated at the fair market value converted to GBP. Individuals can also reduce the expenses incurred before calculating the final amount on which tax will be calculated.

 Expenses such as acquisition cost and brokerage fees can be recorded to reduce the total taxable amount. 

This is where things can get a little complicated. HMRC specifies that most airdrops are taxable and will be subject to Income Tax. This is because an individual receives airdrops in exchange for some services provided by them such as sharing social media posts or creating awareness. 

But if airdrops are received in a personal capacity or without doing anything in return, then they are not considered an income. Individuals need to understand the nature of the transaction and report them accordingly. 

The good news is that HMRC has clear guidelines on how forks will be taxed in the UK. Thankfully, soft and hard forks are not taxable events in the UK. 

Soft and Hard Forks 

Soft Forks - Since no new assets are created, individuals are not required to pay taxes on such an event. 

Hard Forks - No tax is required to be paid on receiving new coins. However, the cost basis for any coins received from a hard fork is derived from the existing tokens from the previous blockchain - not the fair market value of the coin on the day the coin is received. 

This matters because when individuals spend, sell, swap or gift coins received from a hard fork - the event will be considered as a disposal of crypto and will be taxed to Capital Gains Tax just like any other taxable crypto event.

No. HMRC has provided some relief to crypto investors and traders when it comes to the tax that needs to be paid on crypto capital gains. UK taxpayers are required to pay Capital Gains Tax over and above that gain of £12,300. This is called the Capital Gains Tax Allowance which is capped at the sum of £12,300. 

In the UK, all capital gains are taxed at the same rates. They aren’t divided into Short Term and Long Term, unlike other nations. The amount of Capital Gains Tax you'll pay depends on how much you earn.

Here are the 2021-22 rates:

Taxable slab

10% - Basic Rate Income Band (from £12,570 to £50,270)

20% - Higher Rate Income Band (from 50,270 to £150,000)

20% - Additional Rate Income Band (more than £150,000)

As an individual, you need to pay tax in the following scenarios 

• Selling crypto for GBP or another fiat currency 

• Trading crypto for crypto, or crypto for other stablecoins such as USDC 

• Paying for goods and services via crypto 

• Gifting crypto except for when it’s your civil partner or spouse

• Donations

In short, every time you execute crypto asset transactions involving the disposition of the crypto asset, you are eligible for paying Capital Gain Tax on it. However, the tax is limited only to the profit you have observed in the transactions. And we’ve got you covered on how to calculate these taxes efficiently without making it seem like an uphill task.

Before diving into calculating the tax on their crypto transactions, you need to understand and calculate your cost basis. 

Cost basis is the price paid to acquire the crypto asset along with the transaction fee. If these crypto assets have been acquired via staking, or forking - the fair market value on the day of the transaction is considered as the cost basis. 

Tax is then calculated on the difference between the selling price and the cost basis. In short, the difference between what you bought/received the crypto asset for and what you sold/sent it for. 

If you’ve observed a profit in the transaction, then you pay capital gains tax on it. If you’ve observed a loss on it, you don’t need to pay tax on it, but instead, you can use the loss to offset your gains. More on this later. 

Example

Ben bought BTC in May 2022. The cost basis for the transaction was £5000 + £100 in transaction cost. 

In August 2022, Ben sold BTC for £10,000. The transaction looks like this 

Sell Price - Buy Price = Capital Gains on Profit 

£10,000 - £5,100 = £4,900 of profit. 

To then calculate the net tax, Ben needs to understand their regular income and which tax slab they come under. For this example, he has an income of £80,000 which is the 20% tax slab. 

Remember, we need to deduct an allowance of £12,300 on capital gains. 

Since the profit is less than the allowance limit, no tax needs to be paid. 

But in case, the profit observed was £20,000, the transaction would be 

£20,000 - £12,300 = £7,700 and since Ben is under the 20% tax slab

£7,700 x 20% = £1540

Now let’s look at a few situations to see how crypto capital gains tax will be calculated

Just as individuals would sell stocks in an exchange for fiat currency, selling for GBP is subject to taxes. Since selling on an exchange is considered a capital gain, taxes come under this section in the UK. Depending on the profits and regular income of the taxpayer, the tax can be anywhere between 10% to 20%. 

Example

Paula buys ETH in Aug 2021 for £1,000. In Dec 2021 the investments saw a bull run and Paula sold her ETH for £12,000. The capital gains on this transaction are:

= Sell Price - Cost Basis
= £12,000 - £1,000
= £11,000

Since Paula falls under the Basic Income Tax Band and thus Paula is not required to pay taxes till the Capital Gains Tax Allowance limit of £12,300. Thus, she will pay no capital gains tax on this transaction.

A transaction wherein an individual sells crypto for another crypto is taxable and is charged under Capital Gains Tax. 

You need to calculate the gain or loss on such transactions by subtracting the cost basis of the crypto sold from the fair market value of the other crypto bought. 

In case an individual sells the airdrop coins they received, the event will be considered as the disposal of any other crypto asset and will be taxed under Capital Gains. 

In short, users need to pay tax on the income of receiving airdrops and later while selling them under capital gains, both! Yes, it’s a handful.

Example 

David receives crypto assets worth £2,000 in the event of an airdrop. He receives this in exchange for posting social media posts. Thus, £2,000 is considered income and will be taxed under Income Tax. 

After 6 months, David decides to sell the crypto assets for £5,000.

The fair market value was £2,000 and the selling price was £5,000. In such an instance, he will need to pay Capital Gains Tax on the profit of £3,000 from this transaction. 

Now this is where things get interesting. When you’re transferring crypto assets in between platforms, it’s likely that you will have to pay some sort of fees to the platform. In most scenarios, the transfer fee will not be paid in fiat currency but instead in the form of the crypto token itself. 

In such cases, HMRC views the transactions as you disposing of the crypto and hence this event could be taxable. 

HMRC has pretty specific guidance on what is an allowable cost in crypto. These costs can be added to the cost basis and unfortunately, transfer fees are not included in this list. So we can safely assume transfer fees cannot be added to the cost basis and they would be viewed as disposals in some instances.

Example 

Pia bought ETH worth £1,000 and moved that from Binance to her hardware wallet. The transfer fee charged by the exchange was 0.0001 ETH. 

Since she will be paying in ETH, Pia needs to calculate the fair market value at the time of ‘selling’ the crypto. For simplicity's sake, let’s say the price of ETH has remained unchanged. Since there are no capital gains on this transaction, no tax is required to be paid but HMRC would require individuals to keep track of these records.

Since you will be paying in crypto, HMRC looks at it as the disposal of an asset and hence is subject to Capital Gains Tax. 

Taxpayers need to calculate any capital gain or loss by subtracting the total cost basis from the fair market value of the crypto on the day of the transactions.

While gifts are always good news, the crypto taxation bit of it is bad news. Sadly, crypto gifts are taxed in the UK. HMRC views crypto gifts as the disposal of assets and is hence taxed under Capital Gains Tax. 

Unless you’re gifting crypto assets to your spouse/civil partner. This particular transaction is not taxed. So you know what you get for the next event ;) 

Gifting crypto to individuals other than spouses

If individuals are gifting crypto to family, friends or otherwise they will have to calculate the fair market value of the crypto asset on the date the gift was given in pound sterling. 

If an individual has already paid Income Tax while acquiring the crypto asset, according to section 37 of Taxation of Capital Gains Tax Act 1992, the sale proceeds will be reduced by the amount that has already been subject to income tax. 

Example

Leon is a UK resident who acquired crypto worth £1000 as a wedding gift from his mother in 2020. He later sold the crypto assets at a gain of £5000 in 2022. Since Leon falls in the additional tax rate, he will pay Capital Gains Tax on the gains of £4000. 

Donating crypto assets 

If an individual is donating crypto assets to a registered charity, the donations are considered tax-free in the UK. Individuals also get an exemption from Capital Gains Tax. There are two exceptions to the same:

• If an individual donates the crypto asset to the charity at a higher cost than the acquisition cost of the asset, then the individual will have to pay capital gains tax on the difference between the two. 

• In a situation wherein, the donor gets some form of kickback or financial advantage such as profiting from the donation.  In such a situation, the donation gets taxed too.

While it’s known that individuals need not pay taxes on their crypto losses, these losses can be used to set off gains observed in the future. 

There is no limit on how large of a capital loss individuals can offset against their capital gains. This means capital losses can be used to reduce the capital gains to the allowance limit of £12,300 to pay no Capital Gains Tax. 

However, you must register capital losses when you submit your self-assessment tax return. So even if individuals are not required to submit a self-assessment due to low capital gains, if individuals have got capital losses they wish to carry forward, then they should still do this to make sure they're registered with HMRC.

In short, individuals should register capital losses every year to take advantage of off-setting them against gains in the future. HMRC also gives taxpayers a time limit of 4 years to register their losses. Once the 4 year period has lapsed they will not be able to register those losses. 

Example 

Amy made a profit of £30,000 on crypto transactions in 2021. However, in the year 2020, Amy made capital losses of £15,000. In this case, Amy remembered to carry forward the losses. 

The gain in 2021 - £30,000 

Less: Loss in 2020 carry forward - £15,000
Less: Personal Allowance - £12,300 

Tax to be paid on = £30,000 - £15,000 - £12,300
                                = £2,700 

HMRC describes the concept of pooling as, “Instead of tracking the cost basis related to each transaction individually, each type of crypto asset has a ‘cost basis pool’. The consideration (in pounds sterling) originally paid for the tokens goes into the pool to create the ‘pooled allowable cost’”. 

Before we dive into understanding the cost basis, it’s important to know that the cost basis is mandatory by HMRC and there’s no way around it. So grab a coffee and let’s understand the cost basis, because sometimes it can be a handful. 

To calculate the cost basis, HMRC suggests the pooling method for each token. Let’s break this down and understand what this means. 

Example 

Case A

With disposition transaction fees considered in GBP 

What is the total pooled allowable cost if Adam made the below two purchases? 

Adam then decides to sell off ETH on 6th Dec 2021 for

1 ETH for = £1100 [let’s assume transaction fees = £10]

The capital gains will be as:
= Sell Price* - Cost of 1 ETH in the pool (1600/1.5)
= £1100 - 1*(1600/1.5)
= £33.33 

Adjusting for transaction fees 

= £33.33 - £10 (disposition fees)

Total Capital Gains 
= £23.33 

*without transaction fee 

Case B

With disposition transaction fees considered in ETH 

Let’s assume the transaction fees for disposition of 1 ETH is paid in ETH and is equivalent to = 0.01 ETH with all the other transactions remaining the same
The capital gains will be calculated on the ETH paid as transaction fees also
 

Adam then decides to sell off ETH on 6th Dec 2021 for 
1 ETH for = £1100 [let’s assume transaction fees = 0.01 ETH =£11 ]

This is what the final capital gains will look like:

= Sell Price* - Cost of 1 ETH in the pool (1600/1.5)
= £1111 - 1.01/1.5*1600 

= £33.67   

Market Value of ETH paid as transaction fees  

= £33.67 - £11 [disposition fee in ETH]
= £22.67

The above pool for cost basis is called the S104 pool. 

But wait, there’s more to it. We’re going to discuss what happens if acquisitions and dispositions happen on the same day. 

Case C

If a user has made dispositions and acquisitions on the same day of the same token, then it would be netted off against each other to the extent possible and the rest will be considered for pooling into the S104 pool. 

Jack conducted the following trades

As the acquisition and disposition has been conducted on the same day (5th Nov 2021) the acquisition will be totaled to

= 1.5 ETH for £1100+ £600 and cost basis will be calculated accordingly

The capital gains tax will be as

= Sell Price - Same Day Acquisition Cost of Sold Quantity 
= £1150 - 1*(1700/1.5)
= £16.67 

Adjusting for transaction fee 

= £16.67 - £0 (since transaction fee is already included in sell price) 

Capital Gains 
= £16.67

The remaining 0.5 ETH will be added to the S104 pool so that the total pool value will now be:

= 1 ETH (£800) + 0.5 ETH (£0.5*(1700/1.5))

= 1 ETH (£800) + 0.5 ETH (£566.67) 

Therefore 1.5 ETH = £1366.67 

Case D

In case the ETH disposition was higher than the acquisition on the same day then the cost basis would have been taken into consideration from the S104 pool also. (1 ETH = £800)

Jack made the following trades 

As the acquisition and disposition has been conducted on the same day(5th Nov 2021) the acquisition will be totaled to 

= 1.5 ETH for £1100+ £600 and cost basis will be calculated accordingly

The capital gains tax will be as

= Sell Price for 1.5 ETH  - Same Day Acquisition Cost of Total Buy 
= £1.5*£2300/2 - £1700 
= £25

For the 0.5 ETH sold, our S104 cost basis is 1 ETH = £800 

Therefore, cost basis for the remaining 0.5 ETH sold

 = 0.5 ETH *£800

= £400 

Capital gains for the remaining 0.5 ETH sold 

= Sell Price for 0.5 ETH - Cost Basis as calculated above 

= 0.5*£2300/2 - £400 

= £575 - £400 

= £175 

Therefore, Total Capital Gains 

= £25 + £175 

= £200 

Adjusting for transaction fee 

= £200 - £0 (since transaction fee is already included in sell price) 

Total Capital Gains 
= £200 

Case E 

In case there was an acquisition in the subsequent 30 days of such a disposition then the cost basis would shift to the cost basis of the acquisition transaction. 

Jack made the following trades:

 As the acquisition and disposition has been conducted on the same day(5th Nov 2021) the acquisition will be totaled to 

= 1.5 ETH for £1100+ £600 and cost basis will be calculated accordingly

The capital gains tax will be as

= Sell Price for 1.5 ETH  - Same Day Acquisition Cost of Total Buy 
= 1.5*£2300/2 - £1700 
= £25

For the 0.5 ETH sold, as another acquisition has happened within 30 days our cost basis is 0.5 ETH= £1000 

Capital loss for the remaining 0.5 ETH sold 

= Sell Price for 0.5 ETH - Cost Basis as calculated above 

= 0.5*£2300/2 - £1000 

= £575 - £1000 

= - £425

Therefore, Total Capital Loss

= £25 - £425 

= - £400

Adjusting for transaction fee 

= - £400 - £0 (since transaction fee is already included in sell price) 

Total Capital Loss
= - £400

Yeah, we know it can be confusing. But once you sign up with Binocs, we’ve simplified this for you! 

While HMRC has released a few guidelines on DeFi transactions such as lending and staking, the clarity is open to interpretation. The statement suggests DeFi transactions may be subject to Income Tax or Capital Gains Tax depending on the “nature of the transactions”. 

To break it down, if a source of the income is via staking or lending then the income is considered under Income Tax else the gains will be taxed under Capital Gains.

HMRC say it's likely to be considered income if:

• The return to be received has been agreed - as opposed to speculative and unknown.

• If the return is paid by the borrower/DeFi platform.

• If the return is paid periodically throughout the period of lending/staking.

In short, if an individual is receiving new tokens under the pretext of income, it would be taxed under Income Tax. 

Some of these instances can be:

• Earning new crypto coins/tokens through yield farming protocols
• Earning reward tokens, liquidity tokens, etc
• Lending crypto tokens to earn interest 
• Earning crypto dividends 

Moving on to the DeFi space, HMRC is yet to set clear guidelines on these activities, but considering if staking and lending is considered as income, other activities on the DeFi protocol should also be considered as income. Some of these instances could be:

• Earning referral rewards and bonuses 
• Watching ads to earn crypto 
• Playing games to earn crypto tokens 
• Shopping through certain browser extensions

HMRC has not laid down specific guidelines for crypto day trading or any other trading such as margin training, futures, etc. There is guidance on general day trading tax in the UK. 

The way you are taxed depends on the following scenarios: 

1. Speculative - like gambling. No tax applied

1. Self-employed - Business Tax rules are applied 

1. Private investor - Capital Gains Tax on profits from closed positions, excluding spread betting. An individual who is not an investor by profession 

The HMRC has not laid down specific guidelines for margin trading. Crypto margin trading lies in the grey area and it is ideal to consult a tax expert before decisions are made on margin trades. 

The most controversial trade in the UK is the spreads. Many exchanges have been banned from operating because of the spread trading feature offered by them. 

Spread trading is considered gambling which isn’t subject to capital gains tax. Similar to margin trading, clear guidelines have not been provided for derivative trading too. So an individual should speak to a crypto tax advisor for more bespoke advice on these investments.

Individuals do not have to pay crypto taxes on all transactions. There are certain instances when tax is not required to be paid at all. 

Some of them are: 

• Buying crypto with the local fiat currency, aka £ or GBP
• HODLing crypto 
• Transferring crypto between your own wallets

This is a normal transaction that usually takes place on an exchange. When an individual is buying crypto in exchange for £ or GBP, the transaction is tax-free. However, individuals need to keep a track of all their transactions for future records when they sell their crypto.

When individuals transfer crypto assets from one platform to another, there’s no need to pay taxes on such transactions. Instances of such transactions could be transferring crypto from one exchange to another or from one exchange to a wallet. 

Since no additional value is being created from this transfer, such events are not taxable. The HMRC does not view these events as a disposal of an asset and hence are not taxable. 

While we’ve covered taxes on transfer fees in the above section, currently we’re only talking about transferring assets from one’s own account to another wallet. Such situations do not create taxable events. 
 

It’s just like moving money from one's own bank account to another. Such events are not taxable in a generic scenario too. 

It’s unfortunate that sometimes you just lose access to your private keys on crypto wallets or crypto accounts and exchanges get hacked. 

In such a scenario, HMRC has clear rules. 

In case individuals have lost their crypto, this situation is not considered a disposal or Capital Gains Tax. That is, individuals can’t claim a capital loss unless they prove they have no chance of recovering the private key and gaining access to the crypto assets. If the claim has been successful, the lost crypto can be adjusted for capital loss. 

In a similar situation, if crypto assets have been stolen HMRC doesn't view theft as disposal so you can't claim stolen crypto as a capital loss. However, there are a few exceptions to this case. 

For example:

If you've bought crypto off an exchange but don't actually receive your asset, this could be considered a scam and you could make a negligible value claim and later claim a capital loss.

What is a negligible value claim? 

For tax purposes there is no accepted definition of 'negligible value', but generally it applies to assets that have become worth next to nothing while someone has owned them.

The pro tip here is to always understand how to make a negligible value claim and ensure that it's successful. 

Calculating crypto taxes can be a tedious job. Especially if you do it manually. To keep a record of all your various transactions on different exchanges, calculate the costs basis and then the selling price can be a hectic job. 

But not impossible. All you need to do is find a good accountant friend and the job is done :)

Okay no seriously. Follow these steps if you wish to calculate your crypto taxes manually:

• Identify all your crypto transactions and keep them ready 

• Identify the transactions that are subject to capital gains. Calculate the profitable trades and the gains observed in each of them 

• In case of income through crypto, mark those transactions too 

• Calculate your overall income and capital gains tax 

• Subtract your net capital loss from net capital gains 

• Include the allowance of  £12,300 to your capital gains 

• Calculate the net difference between the allowance and the gain and pay the capital gains tax on it 

Yeah, all these steps can be a handful. This is why tax softwares can help automate all your transactions and calculations, accurately and with ease. Binocs will do the job for you :) 

The UK financial calendar for the year runs from the 6th of April of the current year to the 5th of April of the next year. So the financial year reporting in 2023 is for the period of 6th of April 2021 to the 5th of April 2022. 

Individuals need to report their taxes for the financial year by 31st January 2023. This is when crypto taxes will also be reported under the Self Assessment Tax Return. 

Individuals need to maintain their crypto transactions. Some of the reports and details they’d have to keep track of are: 

1. Type of crypto assets 
2. Details on the transaction (date, buy, sell, units)
3. Value of the crypto transaction in GBP 

Most exchanges provide excel files or some format in which these reports can be downloaded and kept for records. 

To file your crypto taxes with Binocs, you need to follow these steps:

1. Integrate all your accounts to the Binocs app.

1. Reconcile your transactions in the transaction view. You might wonder what is there in reconciliation. Well, the process of reconciliation is to make sure that you are not missing any transactions and that your transactions are tagged correctly and the cost basis is correct to calculate taxes accurately. If there are any missing transactions, then use the ‘Add transaction’ button to add a transaction. To calculate taxes accurately, it’s important to tag the transaction correctly. Use the ‘Edit transaction’ button to edit the tag of the transaction. Last but not the least, have a cursory look at the cost basis to see that everything is spic and span. 

1. After most of the work is done in Step 2, you can download the detailed tax report from the dashboard section or see if there are any tax loss harvesting opportunities.Hard work and Binocs pays off!