HMRC is clear: cryptocurrency is an asset, and gains from disposing of it are subject to Capital Gains Tax. Whether you trade Bitcoin, stake Ethereum, sell NFTs, or earn DeFi yield, you may have a tax obligation. The rules are the same regardless of whether you use a UK exchange or a decentralised protocol — if you are a UK tax resident, you owe tax on worldwide crypto gains.
The good news is that the Annual Exempt Amount of £3,000 means small gains are tax-free, and the CGT rates on crypto (18% or 24%) are lower than income tax rates (20%/40%/45%). Understanding when crypto is taxed as capital gains versus income — and how to calculate your cost basis correctly — can save you thousands.
What counts as a taxable “disposal” of crypto?
A taxable disposal occurs whenever you part with ownership of a crypto asset or reduce your beneficial holding. The most common triggers are:
- Selling crypto for GBP (or any fiat currency) — the most obvious disposal
- Swapping one crypto for another (e.g. BTC → ETH) — treated as selling the first and buying the second at market value
- Using crypto to pay for goods or services — treated as a sale at the GBP value of what you received
- Giving crypto away (unless to a spouse or civil partner) — deemed disposal at market value
- Bridging to another blockchain — HMRC's position is evolving, but wrapping or bridging may constitute a disposal depending on the mechanism
Actions that are not disposals: simply holding crypto, transferring between your own wallets (same beneficial owner), buying crypto with GBP, and transferring to a spouse or civil partner. Transfers to a spouse are at “no gain no loss” — the recipient inherits your original cost basis, which can be a useful planning tool.
The high frequency of swaps in DeFi and trading can generate dozens or even hundreds of disposals per year. Each one must be tracked individually with the GBP value at the time. This is why dedicated crypto tax software (Koinly, CoinTracker, CryptoTaxCalculator) is almost essential for active traders.
What CGT rates apply to cryptocurrency gains?
Cryptocurrency is classified as a non-residential asset by HMRC, which means it attracts the standard CGT rates (not the higher residential property rates). After deducting the Annual Exempt Amount of £3,000, your gains are taxed at:
- 18% if you are a basic rate taxpayer (total income including gains up to £50,270)
- 24% if you are a higher or additional rate taxpayer (total income above £50,270)
Crucially, your crypto gains are added to your income to determine which rate applies. If your salary is £45,000 and you make a £10,000 crypto gain (£7,000 taxable after the £3,000 exemption), the first £5,270 of gain fills the basic rate band at 18%, and the remainder is taxed at 24%. This interaction between income and CGT rates is often overlooked.
For someone earning above £50,270 from employment, all crypto gains above £3,000 are taxed at the flat 24% rate. A gain of £50,000 would generate a tax bill of £11,280 — significant, but still lower than what the same income would attract as employment income (40% income tax + NI).
How do you calculate the cost basis for crypto?
HMRC requires you to use the “Section 104 pooling” method for each crypto asset. This means you calculate a weighted average cost basis for all your holdings of a particular token. If you bought 1 BTC at £20,000 and later bought another at £30,000, your pool is 2 BTC with an average cost of £25,000 each. When you sell one, your cost basis is £25,000 — not the specific price you paid for any individual coin.
Two special rules override the pooling method in specific circumstances. The same-day rule requires that if you sell and repurchase the same asset on the same day, the acquisition cost is matched to the same-day purchase — preventing you from crystallising a loss while immediately rebuying. The 30-day rule (bed and breakfasting) extends this: if you repurchase the same asset within 30 days of selling, the acquisition cost is matched to the repurchase price rather than the pool.
In practice, the 30-day rule means you cannot sell crypto to realise a loss and immediately rebuy the same token to maintain your position. You must wait at least 30 days, buy a different token, or have your spouse purchase it instead. For a detailed explanation of these rules and legal workarounds, see our bed and breakfasting guide.
When is crypto taxed as income instead of capital gains?
In some cases, receiving crypto is treated as income (taxed at your marginal income tax rate of 20%/40%/45%) rather than a capital gain. The key scenarios are:
- Mining rewards: taxed as miscellaneous income at the GBP value when received. If mining is your trade, it may be treated as trading income instead.
- Staking rewards: generally treated as miscellaneous income. The tax point is when you receive the tokens and gain the ability to dispose of them.
- Airdrops: if received in return for a service or as part of marketing participation, treated as income. Genuinely unsolicited airdrops with no action required may not be taxable on receipt (only on disposal as CGT).
- Salary paid in crypto: taxed as employment income at the GBP value on the date of payment, subject to PAYE and NI.
- DeFi lending/liquidity provision: returns that are akin to interest may be treated as income. HMRC guidance on DeFi is still developing.
When tokens received as income are later sold, CGT applies to any gain above the value at which they were received. The income tax value becomes your CGT cost basis. For example, if you receive 1 ETH as a staking reward worth £2,000 (taxed as income), and later sell it for £3,000, you have a £1,000 capital gain on disposal.
The distinction matters enormously because income tax rates (up to 45% plus NI) are significantly higher than CGT rates (18%/24%). Understanding which category your crypto activity falls into can make a meaningful difference to your overall tax position.
How are NFTs and DeFi activities taxed?
NFTs are treated the same as any other crypto asset for CGT purposes. Selling or swapping an NFT is a disposal, and the gain is the difference between sale proceeds and your cost basis (purchase price plus gas fees). If you are an NFT creator selling your own work, the proceeds may be treated as trading income rather than a capital gain — similar to an artist selling paintings.
DeFi activities present complex tax questions that HMRC is still working through. Providing liquidity to a pool typically involves depositing tokens and receiving LP tokens in return — HMRC may treat this as a disposal of the original tokens (creating a CGT event). Yield farming rewards are likely income. Impermanent loss may or may not be an allowable loss depending on the structure.
The safest approach for DeFi users is to treat every interaction with a smart contract as a potential taxable event and record the GBP value at the time. While HMRC guidance may eventually provide relief for some activities, assuming the worst case ensures you will not face penalties for under-reporting. If your DeFi activity is substantial, consider specialist crypto tax advice.
What records do I need to keep for crypto tax?
HMRC requires you to keep records for each crypto transaction for at least 12 months after the Self-Assessment filing deadline (so effectively 22 months after the end of the tax year). However, given that cost basis calculations require your complete transaction history, you should retain records indefinitely. Required information includes:
- The type of crypto asset
- Date of each transaction
- Number of units acquired or disposed of
- GBP value at the time of each transaction
- Cumulative total of the Section 104 pool
- Bank statements and exchange records showing fiat deposits/withdrawals
- Wallet addresses used (to prove ownership)
- Records of any income events (mining, staking, airdrops)
Exchange records are a good starting point but are not always complete — especially for on-chain DeFi activity. Export your transaction histories from every exchange you use, and supplement with blockchain explorer records for any on-chain transactions. Crypto tax software that connects to your wallets and exchanges via API can automate much of this data collection.
HMRC has invested significantly in crypto compliance since 2019, issuing “nudge letters” to exchange users and obtaining data directly from UK-based platforms. From 2025, exchanges must report user activity under the OECD Crypto-Asset Reporting Framework (CARF). Accurate record-keeping is not just good practice — it is now essential to avoid penalties.
How do I report crypto on my Self-Assessment tax return?
If your total crypto gains exceed £3,000, you must report them on the Capital Gains supplementary pages (SA108) of your Self-Assessment return. You also need to report if your total disposal proceeds exceed four times the AEA (£12,000) even if your gains are below £3,000. Crypto income (mining, staking) is reported on the Self-Employment or Miscellaneous Income pages depending on the nature of the activity.
If you do not already file Self-Assessment and have taxable crypto gains, you must register with HMRC and file a return. The deadline is 31 January following the end of the tax year. For the 2026/27 tax year (ending 5 April 2027), the filing deadline is 31 January 2028. Late filing incurs an automatic £100 penalty plus interest on unpaid tax.
Use our income tax calculator to determine your income tax band — this tells you whether your crypto gains will be taxed at 18% or 24%. If your employment income already exceeds £50,270, all gains are at the higher rate. For a comprehensive view of how capital gains interact with income tax, see our capital gains vs income tax guide.
Sources
- HMRC — Cryptoassets Manual. Comprehensive guidance on crypto taxation including pooling, income vs CGT treatment, and DeFi. Accessed July 2026.
- HMRC — Capital Gains Tax rates. Non-residential assets: 18% (basic rate), 24% (higher rate). Annual Exempt Amount: £3,000. Accessed July 2026.
- HMRC — Income Tax rates and Personal Allowances. Personal Allowance £12,579, basic rate limit £50,270. Accessed July 2026.
- HMRC — Check if you need to send a Self-Assessment tax return. Reporting thresholds for capital gains. Accessed July 2026.