October 17, 2023

HMRC UK Crypto Tax Guide 2023

Last Updated: January 23, 2024

Component 3 – 1

Introduction

Understanding how much tax you owe on your crypto within the UK can feel confusing sometimes. That’s why we have compiled the following guide to help you along the way. If you think you need expert, hands-on advice, join our community now.

Cryptoasset taxes explained

When investing in cryptoassets as a UK citizen, it’s important to note that you may be subject to taxable gains or losses, as well as taxable income from certain activities. This HMRC guide aims to provide an overview of the UK tax perspective for individuals who hold cryptoassets.

It’s crucial to keep in mind that investing in cryptoassets carries a high level of risk. This page is intended solely to inform you about the UK tax position regarding cryptoassets, and is not intended to provide financial advice. As such, we urge you to exercise caution and do your own research before making any investment decisions.

How much crypto tax do I need to pay as Income Tax?

If your income exceeds £12,570, you must pay a minimum of 20% tax on your crypto earnings. Calculate your crypto tax in three easy steps by using our free cryptocurrency tax calculator.

HMRC Classification of cryptoassets for tax purposes

It is important to note that HMRC does not consider cryptoassets to be currency or money, nor does it consider buying or selling cryptoassets to be a form of gambling. This means that in most cases, profits or gains made from buying and selling cryptoassets are subject to taxation.

While this guide does not provide a detailed explanation of how cryptoassets work, it aims to provide essential information about the tax implications for individuals who have cryptoassets. By understanding the tax consequences, individuals can ensure that they comply with the relevant regulations and avoid any potential penalties.

Why might I have to pay tax on (and tell HMRC about) my cryptoassets?

If you have cryptoassets, it’s important to know that you might have to pay tax on them, and tell HMRC about your activities. The specific tax implications depend on how you acquire and use your cryptoassets. If you fail to report your cryptoasset activities and pay any necessary taxes by certain deadlines, you could be subject to fines from HMRC.

There are several ways to obtain money from cryptoassets, including buying them with fiat currency and later selling them for a profit or gain. Alternatively, you may earn cryptoassets by participating in activities such as mining or staking. If you are involved in decentralised finance (DeFi), which includes lending and borrowing cryptoassets, you may need to check HMRC’s DeFi guidance to ensure you comply with tax laws.

You could also receive “free” cryptoassets through an airdrop, or your employer may provide them as part of your compensation package. Whatever the source of your cryptoassets, it’s crucial to understand your tax obligations to avoid any potential fines or legal issues. While we do not provide an in-depth explanation of how cryptoassets work, we aim to give you the information you need to determine the tax consequences in most cases.

How do I calculate the gain and report it to HMRC?

Calculating gains on cryptoassets and reporting them to HMRC can seem daunting, but with the right information and tools, it can be straightforward. Here is a step-by-step guide on how to calculate gains and report them to HMRC:

1. Determine the type of cryptoasset

Different types of cryptoassets are treated as separate assets for tax purposes, so you need to calculate the gain on each type of cryptoasset separately.

2. Calculate the gain

To calculate the gain, you need to subtract the cost of acquiring the cryptoasset from the proceeds of selling it. If you exchanged one type of cryptoasset for another, this is also considered a disposal for tax purposes. You can deduct any transaction fees directly related to the acquisition or disposal of the cryptoasset.

3. Convert amounts to pounds sterling

You will need to convert the cost and proceeds of the cryptoasset into pounds sterling using the exchange rate on the relevant date. You can use a website like exchangerates.org.uk to find out the rates on a given day.

4. Report the gain to HMRC

If you meet the criteria for reporting capital gains tax, you will need to report the gain on your Self Assessment tax return. You can do this online or on paper. You should also keep records of your cryptoasset transactions, including the dates of acquisition and disposal, the amounts involved, and any relevant exchange rates.
Seek professional support: If you have made several transactions in the year or have complex tax affairs, it may be worth seeking professional support from a tax accountant or specialist cryptoasset tax service.

Remember, even if you are not required to report your cryptoasset disposals to HMRC, you should still keep records of your transactions and calculate your gains or losses each tax year. This will help you to stay on top of your tax affairs and make it easier to work out if you owe capital gains tax in the future.

If you claim means-tested benefits such as tax credits or universal credit, you should be aware that any gains you make from cryptoassets could affect your entitlement to these benefits. It is important to seek advice from a benefits advisor or specialist tax service if you are unsure about how your cryptoasset gains may affect your benefits.

Can I get tax relief if I sell cryptoassets and make a capital loss, or if they become worthless?

If you sell your cryptoassets and make a capital loss, or if they become worthless, you may be able to claim tax relief. However, you can only deduct the capital loss from capital gains arising in the same tax year or a future tax year. To do this, you will need to report the loss to HMRC.

It is important to note that you cannot offset capital losses arising on the disposal of cryptoassets against your income. This means that you cannot use the loss to reduce your income tax liability.

In some cases, if your cryptoasset has become worthless or has negligible value, you may also be able to claim a capital loss. However, you will need to provide evidence to support your claim, such as a statement from the exchange or platform where you held the cryptoasset.

It is worth noting that HMRC’s guidance on cryptoassets is still evolving, and there may be further changes to the tax treatment of these assets in the future. Therefore, if you are unsure about the tax implications of buying, selling, or holding cryptoassets, it is advisable to seek professional crypto tax advice.

What happens if the private key to my cryptoasset wallet is lost or stolen?

If you lose the private key to your cryptoasset wallet or if it is stolen, it can be a stressful and concerning situation. However, it’s important to understand the implications of such an event.

If the private key is lost, then technically there has been no disposal.

However, where it can be demonstrated that the wallet is unrecoverable, then the unfortunate investor can treat this as a disposal and, likely, secure a capital loss.

Where a wallet is stolen then the same will apply – as long as the investor can show that the key is not recoverable.

The loss is usually crystallised by making a negligible value claim.

To do so, you must demonstrate that there is no realistic prospect of recovering your cryptoassets. If HMRC accepts the claim, you will be treated as having disposed of and re-acquired the cryptoassets for no value. This will allow you to claim relief for a capital loss.

Do I have to pay tax when I receive cryptoassets?

If you receive cryptoassets, you need to ask why you have received them to understand if you owe any income tax on the value received. In general, if you have received cryptoassets as a form of reward then they will usually be taxable. On the other hand, if you receive cryptoassets as an unrequested gift without doing anything in return then they will generally not be in scope of income tax. However, when making a gift, the person making it should consider if there are any inheritance tax or capital gains tax consequences.

We discuss below some situations in which income tax might be payable on cryptoassets received as a form of reward.

In the UK, the tax treatment of cryptoassets depends on the nature and purpose of receiving them. If you receive cryptoassets as a reward for a service or activity, such as mining or staking, or in return for providing a service, such as participating in an airdrop, then the value of the cryptoassets received is generally taxable as either trading income or miscellaneous income, depending on the circumstances.

Mining

Mining is the process of using computing power to solve complex mathematical puzzles to maintain a list of all transactions involving a cryptoasset, such as Bitcoin. Income from mining is treated as trading income if the activity is of the nature of a trade, or as miscellaneous income if it is not. You can use the trading allowance of up to £1,000 per tax year against both trading income and miscellaneous income. If your total trading and miscellaneous income is more than £1,000, you will need to decide whether the income is trading income or miscellaneous income, and value the cryptoasset income received in pounds sterling using the exchange rate on the date of receipt.

Staking

Staking is a way of earning rewards on certain types of cryptoassets by locking them away for a certain period. Income from staking is generally taxable as either trading income or miscellaneous income, depending on the circumstances. However, it is also possible for a return on staking to be treated as a capital receipt in certain contexts. Staking cryptoassets in a way where you transfer ownership of them to someone else will be treated as a disposal for capital gains tax purposes.

Airdrops

Airdrops are when someone receives some of a certain kind of cryptoasset for some reason. If you receive airdropped cryptoassets in return for, or in expectation of, a service, then the value of the cryptoassets received is generally taxable as either trading income or miscellaneous income, depending on the circumstances.

It’s important to note that if you earn less than £1,000 in total cryptoassets in a tax year, and you have no other trading or miscellaneous income, then you should not have to report it to HMRC or pay income tax on it. However, if you claim means-tested benefits, such as tax credits or universal credit, you should still report the income to the relevant authorities. It’s always a good idea to seek professional advice on crypto tax if you’re unsure about the tax treatment of your cryptoasset income.

Employment income

As an employee, it’s important to understand the tax implications of receiving cryptoassets from your employer. If the cryptoasset can be easily exchanged for cash, such as Bitcoin, then your employer must account for income tax and National Insurance on the value of the cryptoasset you receive. This means that either the tax and National Insurance contributions will be deducted from your wages or you will need to reimburse your employer separately.

However, if the cryptoasset cannot be easily exchanged for cash, then you will not usually need to pay employee National Insurance on the amount. In this case, your employer should either deduct the tax from you under PAYE or report the amount on a form P11D.

It’s important to note that if your employer has not deducted tax from you under PAYE and HMRC (Her Majesty’s Revenue and Customs) is unable to collect the tax from you through an adjustment to your tax code or other means, you may need to pay your own income tax directly to HMRC via Self Assessment. The usual deadline to register for Self Assessment is by 5 October after the end of the tax year.

As an employee, it’s your responsibility to ensure that you pay the correct amount of tax on any cryptoassets you receive from your employer. If you’re unsure about how to do this or what your tax obligations are, it’s important to seek professional advice from a tax specialist or HMRC. By staying on top of your tax obligations, you can avoid potential penalties and ensure that you’re compliant with the law.

What records should I keep for tax if I have cryptoassets?

If you have cryptoassets and need to file taxes, it is important to keep accurate records of your transactions and holdings. The specific records you need to keep will depend on your circumstances.

If your cryptoasset income is less than £1,000 per tax year and you rely on the trading allowance, you should keep records that demonstrate this. This would include your transaction history, the market values of the cryptoassets in pounds sterling at the relevant dates, and relevant calculations.

However, if you decide not to use the trading allowance and deduct expenses against your trading income, you should keep business records of these expenses. For example, if you engage in dedicated mining activity, you should keep records of the cost of computers and electricity used for mining.

If you make capital investments and disposals in cryptoassets, you should also keep records of the dates and amounts of your investments and disposals. You may need to calculate your capital gains and losses for tax purposes.

Keeping accurate records of your cryptoasset activity is important to ensure that you comply with tax laws and regulations. It can also help you to accurately calculate your tax liability and potentially reduce your tax bill by deducting allowable expenses. For more information on tax obligations related to cryptoassets, it is recommended to visit GOV.UK.

What if I make a loss on my trading income or miscellaneous income from cryptoassets?

If you make a loss on your trading income or miscellaneous income from cryptoassets, there are different rules that apply depending on the type of income.

For miscellaneous income, any loss can be carried forward to be deducted from future miscellaneous income. This can be useful if you anticipate earning miscellaneous income from cryptoassets in the future.

For trading income, the rules are more complex. If you are carrying on a trade in cryptoassets and make a loss, you may be able to set the loss against other trading profits. Alternatively, you may be able to set the loss against your miscellaneous income for the tax year, or carry the loss forward to be set against future trading profits or miscellaneous income.

It’s important to note that there are restrictions on the use of trading losses. For example, losses from certain transactions, such as those that are not done on a commercial basis or those where there is no reasonable expectation of profit, may not be allowable losses.

Additionally, there are limits on the amount of trading losses that can be offset against other income in a tax year.
If you have made a loss on your cryptoasset trading income or miscellaneous income, it is important to keep accurate records to support any claims for relief or deduction. You should also seek professional tax advice to ensure that you are complying with all relevant tax rules and regulations.

How do I work out if I am ‘trading’ in cryptoassets?

Determining whether you are ‘trading’ in cryptoassets requires an assessment of various factors, such as the frequency, volume, and sophistication of your activities. If you are simply buying and selling cryptoassets as a capital investment, HMRC would usually treat these as capital gains rather than trading income. However, if you are making frequent and organised trades with some degree of sophistication, you may be considered a cryptoassets trader, which would mean that income tax and National Insurance contributions would be payable on your profits.

It is important to note that even if you are engaging in transactions that are described as ‘trades’ through an exchange or other means, this does not necessarily mean that your activities as a whole constitute a ‘trade’ for tax purposes or that you are considered to be self-employed.

If you receive cryptoassets as income (other than employment income), the tax treatment of that income will depend on whether it is treated as ‘trading’ income or ‘miscellaneous’ income. This determination is based on factors such as the scale of activity, organisation, risk, and commerciality. It is your responsibility to determine the appropriate tax treatment for your activities and report them to HMRC as required.

In general, to determine whether you are trading in cryptoassets, you should consider whether your activities have the badges of trade. These include factors such as the intention to make a profit, the frequency and volume of transactions, and the level of organisation and sophistication involved. It is important to keep accurate records of your transactions and seek professional advice if you are uncertain about your tax obligations.

How does being non-domiciled in the UK affect tax on cryptoassets?

As a non-domiciled individual in the UK, your tax treatment for cryptoassets will depend on the location of the asset and the type of tax in question.

For capital gains tax purposes, if you are non-domiciled and making capital disposals of cryptoassets, you need to know the location of the asset. UK resident, non-domiciled individuals can access the remittance basis of taxation for their non-UK gains. This means that foreign gains can be excluded from UK tax if the proceeds are kept offshore and not brought into the UK.

However, for inheritance tax purposes, non-domiciled individuals are only subject to UK inheritance tax on their UK assets. This means that if your cryptoassets are located outside of the UK, they may not be subject to UK inheritance tax.

It’s important to note that the rules around non-domiciled status and taxation can be complex, so seeking professional advice from a tax specialist is recommended to ensure you are fulfilling your tax obligations correctly.

How do I find the location of cryptoassets?

As cryptoassets are not physical assets, determining their location can be challenging. HMRC considers the location of cryptoassets to generally follow the tax residence of the beneficial owner. For instance, if a person is a UK resident but domiciled in France, and owns Bitcoin, the holding will be regarded as a UK asset for UK tax purposes, even though Bitcoin’s value is denominated in US dollars. This means that any gain made from the disposal of the Bitcoin holding may be subject to UK tax and cannot be excluded from tax even if the remittance basis is applied.

However, if a cryptoasset, such as an NFT, is a digital representation of an underlying asset, such as gold bullion, the location of the cryptoasset will follow the location of the underlying asset.

If a person is earning income in cryptoassets, such as through mining or staking, and is not domiciled in the UK, the income from the foreign source will still be treated as foreign income. However, it will not be possible to exclude the income from UK tax if the remittance basis applies. This is because the cryptoassets are treated as being located in the UK for UK resident taxpayers, and the income is therefore considered automatically remitted to the UK.

How does being not resident in the UK affect tax on cryptoassets?

As a non-resident individual, your tax obligations in the UK regarding cryptoassets differ from those of UK residents. In general, non-residents are not liable to UK capital gains tax on disposals of cryptoassets. However, there are some exceptions to this rule, particularly if you are non-resident in the UK only temporarily.

Regarding income from cryptoassets, such as mining, staking, and airdrops, if you are not resident in the UK, you are only liable to UK income tax on your trading profits if they arise from a trade carried on wholly in the UK or the part of your trade that is carried on in the UK. If your income is considered miscellaneous income, you are only liable to UK income tax on this income if it arises from a source in the UK. It is important to note that HMRC has not published guidance on this point, so seeking professional advice is recommended.

If there is any UK connection to your cryptoasset activities, even as a non-resident, you will need to consider all the facts and circumstances to determine whether your income is either from a trade carried on in the UK or from a UK source. For instance, income may be taxable in the UK if the activities are carried out while physically in the UK or if the computer equipment used is physically located in the UK. If you are unsure, it is always best to seek professional advice.

How are crypto assets treated for means-tested benefits?

If you receive means-tested benefits, it is important to understand how your cryptoasset activity may impact your eligibility for these benefits. The treatment of cryptoassets for means-tested benefits may be different from their treatment for tax purposes.

If you currently claim universal credit, you should contact the Department for Work and Pensions (DWP) to confirm how any cryptoassets, income or gains should be reported. If you claim tax credits, you should contact HM Revenue and Customs (HMRC) to clarify reporting requirements.

It is worth noting that the trading allowance, which allows a certain amount of income from trading activities to be exempt from income tax, is not available for universal credit purposes.

To ensure you understand your obligations and eligibility for benefits, it is advisable to seek professional advice and guidance on this matter.

Where can I find more information?

Looking for more information? Explore these valuable resources on cryptoasset taxation:

  1. Official Government Guidance: GOV.UK offers insights into the tax implications of cryptoasset activities, including buying, selling, and receiving them. Topics covered include capital gains tax, income tax, and national insurance.
  2. HMRC’s Cryptoassets Manual: Designed for tax professionals, this manual provides in-depth guidance on how different cryptoassets are treated for tax purposes. It includes practical examples to help calculate tax liabilities.
  3. Bank of England and Financial Conduct Authority: These institutions offer broader insights into cryptoassets and their regulatory aspects. Their publications provide context and analysis of cryptoasset use.
  4. HMRC’s Getting Help Page: If you need additional support, visit HMRC’s Getting Help page. It lists various resources, including a dedicated helpline for tax-related queries. Remember, for complex tax matters, seeking professional advice is advisable.
  5. Plus, Become a Crypto Tax Degen: Take your knowledge to the next level by becoming a part of our community! Subscribers receive our 2023 crypto tax book and can even benefit from personalised tax advice from our expert team. Join us today!

Andy Wood

Andy has a breadth of experience as a Barrister and as a Chartered Tax Advisor, which means he comes into the crypto space with expertise he can't wait to share.

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