In the UK crypto will either be subject to Capital Gains Tax or Income Tax.

Capital Gains tax

In the vast majority of cases, individuals hold cryptoassets as a personal investment, usually for capital appreciation or to make particular purchases. They will be liable to pay Capital Gains Tax when they dispose of their cryptoassets.

Disposals of crypto include:

Taxation will be 10% or 20% on any crypto gains, depending on the Income band you fall under:

Capital Gains Tax Allowance as follow:

Capital loss

In the UK, there is no limit on how large of a capital loss a taxpayer can offset against their capital gains.

In other words, taxpayers can use as many capital losses as they want to reduce their capital gains back down to the Capital Gains Tax free allowance amount, so they'll pay no Capital Gains Tax.

Registered capital losses can be carried forward indefinitely until they're fully utilized. However, taxpayers must register capital losses when they submit their self-assessment tax return.

It's therefore advisable to submit a self-assessment even if not required by the amount of your capital gains, in order to carry losses forward for future offset.

In general, the best practice is to always register capital losses in the year they were made, although HMRC gives taxpayers a four-year time limit to register capital losses. After the four-year period, taxpayers are no longer able to register their losses and utilize them to offset future gains.

Calculation of Capital Gain and Loss - Cost Basis/Charging Price

The cost basis is how much it cost a taxpayer to buy their crypto, plus any transaction fees.

If crypto are acquired by other means - like an airdrop or fork - the fair market value, in GBP, of the crypto on the day were received, will be the cost basis.

To learn more about the cashout methods used to calculate capital gain and loss visit the page at this link: https://app.intercom.com/a/apps/w7odtkbo/articles/articles/8100267/show?language=en

Lost or stolen crypto

Lost crypto is not considered a disposal for Capital Gains Tax purposes as the asset still exists, even if the private key is lost. So if you've lost your private key - you can't claim this as a capital loss.

However, if you can prove there is no chance of you recovering your private key and gaining access to your asset again - you can make a negligible value claim. If this claim is successful, you would later be able to claim your lost crypto as a capital loss.

Similarly, for stolen crypto - HMRC doesn't view theft as a disposal so you can't claim stolen crypto as a capital loss.

At the same time, you will not pay any Capital Gain either on lost or stolen Cryptos.

Income Tax

Individuals will be liable to pay Income Tax and National Insurance contributions on crypto assets which they receive from:

There may be cases where the individual is running a business which is carrying on a financial trade in crypto assets and they will therefore have taxable trading profits. This is likely to be unusual, but in such cases Income Tax rules would take priority over the Capital Gains Tax rules.

Calculation of Crypto Income

The value of your Crypto Income is calculated identifying the fair market value of the coins or tokens on the day and hour that were received, converted to GBP

Income Allowance as follow:

Crypto to Crypto transactions

Crypto trading in the UK is taxed. So if you're trading Bitcoin for Ether or any other cryptocurrency - you'll pay Capital Gains Tax.

HMRC views this as two separate transactions. Trading your asset is a disposal - just like selling or spending it. So the asset you dispose of, you'll pay Capital Gains Tax on if you've made a gain.

To calculate your capital gain, you need to use the cost basis of the crypto you disposed of and subtract it from the fair market value for that asset on the day you traded it for another crypto.

Buying crypto with stablecoins is viewed as trading crypto for crypto, so any profits are subject to Capital Gains Tax.

Transfers management

Transferring crypto between your own crypto wallets or exchanges is tax free.

The fees paid for this type of transactions are taxable only if paid in crypto because seen as a disposal of an asset and you'll need to pay Capital Gains Tax on any profit.

Fees paid in fiat currencies, like pounds, are tax free.

Liquidity Pools

If you receive a liquidity pool token in exchange for your crypto - it's a disposal.

You can add up your cost basis based on the tokens you've sent to the pool and then subtract that amount from the fair market value of the tokens at the point of disposal. Your liquidity pool tokens then inherit this as the cost basis for when you want to remove them from the pool.

Soft forks and Hard forks

For soft forks, no new assets/tokens are received therefore no taxes are paid.

For hard forks, new coins/tokens are received but you still won't pay any Income Tax on it. However, your cost basis from any coins received from a hard fork is derived from your existing tokens from the previous blockchain - not the fair market value of the coin on the day you received it.

Airdrops

Airdrops are considered income if some actions were performed to earn them. This could include sharing a social media post or being rewarded due to previous trades on a given blockchain.

However, airdrops are not considered income if received without actively performing any sort of actions.

The income calculation is based on the fair market value of the tokens on the day you received them, in GBP.

Airdrops are subject to both Income Tax, when received, and Capital Gains Tax the moment of their disposal in instances like: selling, swapping, spending or gifting them.

The cost basis for airdrops is the fair market value on the day were received, in GBP.

Gifts and Donations

Gifting crypto in the UK is taxed. It's seen as a kind of disposal and therefore subject to Capital Gains Tax.

However, you can gift crypto to your spouse or civil partner tax free and you can donate crypto to a registered charity tax free.

Mining

Miners will pay Income Tax on mined coins, as well as Capital Gains Tax when they later dispose of those mined coins.

If your mining activity is classified as a hobby, then any income from mining has to be declared separately under the heading of "miscellaneous income" on your tax return.

DeFi

Instances like: adding or removing liquidity, staking and receiving large sum from DeFi protocols are seen as disposal and therefore fall under Capital Gains Tax.

Meanwhile, returns may be seen as income if:

Earning new tokens or coins on a periodic basis through DeFi activities - is more likely to be seen as income and subject to Income Tax.

The taxes to be paid on DeFi transactions depend on whether they are seen as "earning" crypto or "disposing" of crypto.

In case of "earning" Income Tax will be applied, in case of "disposing" Capital Gains Tax will be applied.

Purchasing goods or services in Crypto

Spending your crypto is subject to Capital Gains Tax because you're disposing of your asset.

UK Financial Year

The UK financial year runs from the 6th of April to the 5th of April the following year.

Taxpayers need to report their taxes by the 31st of January of the year following the current fiscal year. (E.g. 31st January 2024 for the 2022-2023 fiscal year).

Where to Report your Crypto

Crypto taxes are filed as part of the Self Assessment Tax Return. In summary: