Have you invested in cryptocurrency? Understand your tax obligations

A guide to UK tax considerations for cryptocurrency investors in the UK and overseas

HMRC
Legal
Planning
Tax

In recent years, we have seen a big increase in individuals investing in cryptoassets – particularly cryptocurrencies. The increase and questions over the correct tax treatment have given rise to specific guidance issued by HMRC. We set out below some issues you need to consider and where further advice from specialist crypto tax advisers would be beneficial.

What are cryptocurrencies?

Cryptocurrencies are digital coins or tokens typically built on blockchain technology, which records transactions across a peer-to-peer network in a decentralised ledger. Bitcoin and Ethereum are two better known examples, but many different coins and tokens exist.

The decentralised nature of cryptocurrencies is one of their defining factors, no central bank or government authority controls their distribution, as with traditional currencies. Cryptocurrencies can be used to pay for goods or services, to invest, or simply to exchange funds with someone else, much the same as traditional currency. They were originally intended to act as a means of payment but are being used increasingly as a store of wealth or a speculative investment asset.

In a similar sense to foreign exchange markets, cryptocurrencies can be bought/sold on a variety of online exchanges which allow investors to:

exchange their traditional fiat (government backed) currencies like pounds sterling or US dollars for a particular token;
exchange one type of cryptocurrency for another and/or
convert cryptocurrency coins or tokens into traditional fiat currency.

The blockchain network underpinning many cryptocurrencies relies upon the peers (i.e. users) of that network to verify all of the transactions that take place. These transactions are split up into blocks and distributed to “miners”, who verify the transactions by solving a cryptographic hash (a puzzle that is solved by the miners using computer hardware) under a Proof of Work (“PoW”) system.

Some cryptocurrencies use staking or Proof of Stake (“PoS”) which involves individuals locking their cryptocurrency away to be used to verify transactions on the network. These miners and stakers are rewarded for their audit work through the distribution of the cryptocurrency relating to that particular blockchain. This is how the supply of cryptocurrencies increases.

UK tax treatment of cryptocurrencies

For UK tax purposes, cryptocurrencies and other cryptoassets are usually subject to Capital Gains Tax (CGT) on any realised increase in value for individuals who hold them as personal investments. In some cases, individuals who frequently buy and sell them may be regarded as carrying on a trade. Where this is the case, profits may be subject to Income Tax rather than CGT.

Cryptoassets may be used for staking or mining to earn additional cryptoassets. Depending on the nature and scale of the activity, any rewards received may be subject to Income Tax as either trading income or miscellaneous income.

If there has been no disposal of the cryptocurrencies or other cryptoassets there is not usually any tax due as you only pay taxes in the UK on realised profits.
A disposal for UK tax purposes may occur if cryptoassets are sold for cash, used to buy other assets with a value or exchanged for other cryptoassets. For example, if an individual has exchanged a digital coin from one platform to another platform (i.e. Bitcoin to Ethereum) this would result in a disposal for UK CGT purposes at a realised capital gain or capital loss and a re-purchase at the market value at that date of the new token.
Where cryptocurrency is received or used as consideration for goods or services, the transaction should be recorded at the market value of the cryptocurrency at the date of the transaction. Where applicable, VAT should be accounted for on that value.
UK resident individuals have a tax-free annual exemption of £3,000 during the 2025-26 & 2026-27 tax years, which could be used to reduce CGT owed. Capital gains will then be taxed at either 18%, 24% or a mix of those two rates, depending on the size of the gains and the level of other taxable income and gains.
Individuals who leave the UK and return within five tax years may be subject to UK tax on certain cryptocurrency gains realised during their period of non-residence. Under the temporary non-residence rules, such gains may become taxable in the year of the individual’s return to the UK.
Special rules (referred to as “Bed and Breakfasting” rules) apply for selling and buying the same cryptocurrencies within 30 days.

As cryptocurrencies are speculative assets, their value can fluctuate significantly. In some cases, cryptocurrencies may lose all or substantially all of their value, for example in the event of a “rug pull” or fraud. It may then be possible to make a negligible value claim, allowing the asset to be treated as having been disposed of and reacquired at a negligible value, thereby crystallising a capital loss for tax purposes that can be used against current and future gains.

The UK tax year covers the period 6 April to 5 April each year, and any taxes due via Self Assessment are due by the following 31 January.

You need to be careful when calculating the gains and losses arising from the disposal of cryptocurrencies. HMRC receives information gathered from crypto exchanges around the world and will pursue UK residents who fail to report their gains correctly. Civil penalties for failure to report gains can be severe and, depending on the circumstances, can range up to 100% or more on any tax underpaid, but are normally much less – particularly if the taxpayer makes a voluntary disclosure rather than waiting for investigation. In some circumstances, HMRC might even consider criminal investigation with a view to criminal prosecution.

Allowable fees

Examples of the types of costs which can be deducted in calculating profits or losses include the following:

Transaction fees paid for having the transaction included on the distributed ledger;
Exchange fees to acquire or dispose of tokens for sterling.

UK tax returns

For many individuals the disposal of cryptocurrencies may have indirect consequences such as needing to register for Self Assessment and report the gains realised.

Individuals must generally report their capital gains and losses completing on Self Assessment tax returns if their total chargeable gains before deducting losses exceed the annual exempt amount (£3,000 for 2025/26 and 2026/27), or their total proceeds from disposals of chargeable assets exceed £50,000. These thresholds apply across all chargeable assets including cryptoassets, and reporting may be required even where no CGT is payable.

Individuals will need to report the gain on their Self Assessment return and the tax will be due on the 31 January following the end of the tax year.
Capital losses can also be claimed in writing and usually have a four-year time limit.
If you are not registered for Self Assessment, you will need to register for Self Assessment by 5 October following the end of the tax year and file your tax return by the 31 January following the end of the tax year in which the disposal took place and pay the taxes to HMRC.
Alternatively, you can use the “real time” Capital Gains Tax Service immediately to report your gain by 31 December in the tax year after you made the gain. For example, if you made a gain in the 2025/26 tax year, you will need to report it by 31 December 2026. HMRC will send you a letter with the payment reference number and details of how to make payment.

What reporting issues may investors face?

There can be various challenges in computing gains and losses including:

Sometimes large numbers of transactions are undertaken each tax year involving multiple cryptocurrencies and other cryptoassets across multiple platforms – which can make it difficult to keep personal records accurately.
Cryptocurrency exchanges may only keep records of transactions for a short period, or the exchange may no longer be in existence when an individual comes to evaluate the position. Therefore, we advise that records are routinely downloaded and saved by investors as soon as possible. If feasible, we recommend keeping a running spreadsheet of purchases and sales throughout the year.
UK tax rules dictate that specific ordering rules apply to cryptocurrency coins and tokens purchased and sold across multiple wallets via a pooling method – similar to share pooling. For example, an individual may have multiple wallets across separate trading platforms and containing the same digital coin (e.g. Bitcoin) which would need to be calculated together to work out any potential profit/loss on disposals.
Also, the market value of cryptocurrency coins and tokens needs to be converted into pounds sterling (as most are priced in US dollars) at the time of each transaction (i.e. purchase or sale).

In summary, individuals must therefore keep or ensure they have access to a record of the following:

the type of cryptocurrency or other cryptoasset;
the date of the transaction;
the nature of the transaction – purchase, sale or exchange;
the number of units involved;
the value of the transaction in pounds sterling (this is the market value in GBP at the date of the transaction);
the cumulative total of the investment units held as well as the cumulative cost;
bank statements and wallet addresses.

These records will help enable correct reporting on Self Assessment tax returns as well as forming appropriate evidence of that in the event of an enquiry.

Considerations for foreign income and gains

From the 2025/26 tax year onwards, the UK’s domicile-based tax regime has been replaced by the Foreign Income and Gains (“FIG”) regime. Individuals who become UK tax resident after at least 10 consecutive tax years of non-UK residence may qualify for FIG relief. Where a valid claim is made, qualifying foreign income and gains arising during the four-year FIG period are exempt from UK tax, although they may still need to be reported to HMRC. Such income and gains can also be remitted to the UK without a further tax charge.

Cryptoassets are a unique asset class as they are digital in nature and do not have a physical location. Accordingly, the availability of FIG relief depends on whether the cryptoassets in question are regarded as foreign assets for UK tax purposes. Where a cryptoasset derives its value from an underlying asset, such as shares, debt securities or gold, its situs may be determined by reference to the location of that underlying asset. Gains on the disposal of such cryptoassets may therefore qualify as exempt foreign gains.

In contrast, cryptoassets such as Bitcoin and Ethereum are not backed by underlying assets. As a result, gains arising on their disposal are unlikely to qualify as foreign gains for FIG purposes and may remain fully chargeable to UK CGT.

Considerations for businesses

This summary discusses the taxation of cryptocurrencies for individuals only. If a business or company is involved with cryptocurrencies the tax treatment further considerations may apply.

Closing thoughts

The tax treatment of any transaction involving the use of cryptocurrencies needs to be looked at on a case-by-case basis considering the specific facts and circumstances. The cryptocurrency market is a fast-moving one and HMRC are alive to the fact that crypto use is becoming an ever-bigger feature of the economy, both in terms of their use as a fiat currency replacement and as a speculative asset.

Price Bailey has experience working with crypto investors and can support with tax compliance or tax planning involving cryptoassets. In the event of a tax investigation, or needing to make a voluntary disclosure involving cryptoassets, then we can support with this too.

We always recommend that you seek advice from a suitably qualified adviser before taking any action. The information on this page is intended as a general guide only. While we work to keep our content accurate and up to date, we cannot guarantee that it reflects the position at the time you are reading it. No responsibility for loss occasioned by any person acting or refraining from action as a result of this material can be accepted by the authors or the firm. For more information on our editorial process, click here.

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