Crypto assets are defined by HMRC as ‘cryptographically secured digital representations of value that can be transferred, stored or electronically traded’. In their simplest form, Crypto assets are digital currencies that enable decentralised financial services through public blockchains.
The story of crypto assets began in 2008, with obscure news coverage of the invention of Bitcoin. There was limited initial interest, with owners largely limited to die-hard technologists. Since then, the crypto market has grown exponentially in popularity, with both the Federal Reserve and the Bank of England considering producing their own digital currencies.
With over 37 million unique crypto assets available, popular crypto coins such as Bitcoin, Ethereum and Cardano are increasingly being accepted by traditional vendors as payment. With this increased adoption of UK crypto assets and substantial investment opportunities, HMRC has adapted its regulations to incorporate crypto transactions within its taxation frameworks.
Whether you are a casual investor or partake in high-volume crypto trading, you must seek specialist UK crypto tax advice to ensure that you meet your tax obligations, minimise capital gain tax and stay compliant with the ever-changing HMRC regulations.
At DS Burge & Co, our specialist crypto accounting team can help you structure your affairs efficiently and ensure your cryptocurrency disclosures are accurate, timely, and complete.
This article provides a practical guide to UK crypto tax in 2025 and how HMRC applies taxation rules to cryptocurrency activities.
Table of Contents
Do you have to pay tax on Crypto?
The fundamental principle underpinning UK crypto taxation is that virtually all disposal events and transfers trigger tax consequences. The HMRC crypto assets manual establishes two primary tax events:
1. Capital Gain Tax (CGT): Applied when you dispose of a crypto asset for more than your acquisition cost. This is charged at two rates, depending upon your personal tax rate:
- Basic Rate Tax Payer: 18% CGT
- Higher Rate Tax Payer: 24% CGT
2. Income Tax: Charged at 20%-45% on crypto received as earnings from activities such as staking rewards or mining income.
The tax treatment imposed depends upon the activity taken rather than the specific asset class. For instance, trading crypto daily can be deemed as an income-generating business activity, while the occasional sale of crypto would only attract CGT. Below, we will explore the various actions and their taxation in accordance with HMRC frameworks.
When do you have to pay tax on Crypto?
Selling Crypto for Fiat Currency
Fiat currency is government-issued currency or legal tender (US Dollar, British pound, etc). The transfer of crypto to fiat currency requires the crypto asset’s direct disposal (sale). Any profits generated from the sale of the crypto asset will have a capital gain tax imposed.
Tax Treatment:
The capital gains tax rate on cryptocurrency for 2025/26 ranges from 18% for basic rate taxpayers to 24% for higher rate taxpayers. The annual £3,000 CGT exemption still applies to crypto sales.
When selling only part of the same crypto asset, it can be difficult to identify the true profitable gain. For instance, if you own 10 bitcoins, purchased at varying rates, but choose only to sell 5, how do you identify which bitcoin to realise your gains?
HMRC’s guidelines for crypto CGT cost based matching rules largely follow the same as share matching rules which are as follows:
- Same-day Rule: If you sell and purchase the same crypto asset on the same day, the cost of the crypto purchased that day is used against the crypto sold that day.
- 30-Day Rule: If you sell a cryptocurrency and purchase the same cryptocurrency within 30 days, the cost of the crypto purchased within 30 days after will be used as a cost against the proceeds of the crypto sold before.
- Section 104 Pool: When the above rules do not apply, the average purchase price of the remaining holdings can be used to calculate any profitable gains made from the sale. For more information on Section 104 pool, you can read the HMRC CGT guidance.
HMRC allows for specific sale expenses to be offset against profitable gains for the calculation of CGT. This includes exchange fees, transaction costs, and professional advisory fees. These costs do not affect your CGT annual exemption.
Examples of Selling Crypto for Fiat Currency
Standard Fiat Sale:
For example, you purchased 1 Bitcoin for £45,000 in August 2024 and sold it in August 2025 for the market rate of £85,000, generating a profit of £40,000. Assuming fees and transfers have been taken into consideration, and you still have your CGT allowance for the year, CGT payable would be as follows:
£40,000 (Profit) – £3,000 (CGT allowance) = £37,000
Basic Rate Taxpayer = £37,000 x 18% CGT = £6,660 Tax Payable
Higher Rate Taxpayer = £37,000 x 24% CGT = £8,800 Tax Payable
Utilising cost basis rules for CGT:
Let’s assume you purchased four bitcoins in March 2023 for a price of £20,000 each, an £80,000 investment. In July 2025, the market spikes and you sell one bitcoin for £85,000. A few weeks later, the market dips and you decide to purchase one bitcoin for £80,000 in early August.
As crypto was purchased within 30 days of selling, the ‘30-day rule’ can be applied to calculate CGT for this sale.
£85,000 (Sale Value) – £80,000 (Purchase Price) = £5,000 Gain
£5,000 – £3,000 (CGT allowance) = £2,000 Gain
Basic Rate Taxpayer = £2,000 x 18% CGT = £360 Tax Payable
Higher Rate Taxpayer = £2,000 x 24% CGT = £480 Tax Payable
When deciding whether to dispose of crypto assets and transfer to fiat currency, it is important to consider all three of the above tax rules.
Transferring Crypto Assets between Wallets/Exchanges
No tax is payable for transferring crypto assets between wallets or crypto exchanges, similar to transferring funds between bank accounts.
However, care should be taken when transferring crypto, as this is the most common process for fraud to occur.
Trading cryptocurrency
When trading one cryptocurrency for another (i.e. Bitcoin to Ethereum), the initial crypto asset must be sold to complete the transaction. For example, the sale of Bitcoin to GBP, and then the purchase of Ethereum using GBP. The transfer to GBP establishes a disposal of proceeds, with any realisable gains generating CGT.
A capital gains tax is still generated even if the trade occurs in the same crypto wallet. The tax treatment follows the same methodology as selling crypto for fiat currency. Individuals are still entitled to their annual CGT allowance of £3,000, and the base cost for CGT is calculated using the same matching rules as noted above. Any fees incurred can be deducted from any realisable gains before CGT calculations. For dedicated capital gains tax advice, speak to our team of specialists.
For individuals who frequently trade crypto assets, HMRC could consider any gains as tradable income and require profits to be subject to income tax. This is a grey area, and frequent traders must seek specialised financial crypto advice. Please speak to one of our specialist crypto accountants.
Example of Taxation for trading cryptocurrency
Let’s assume you exchange 1 Solana (originally purchased for £50), but now valued at £200, for £200 worth of Cardano. The CGT calculation would be as follows:
£200-£50 = £150 profitable gain
Assuming you have exceeded your CGT allowance, CGT payable is as follows:
Basic Rate Taxpayer = £150 x 18% = £27 Tax Payable
Higher Rate Taxpayer = £150 x 24% = £36 Tax Payable
Investors often overlook these ‘in-kind ‘ exchanges of cryptocurrencies, assuming that no tax would be payable. However, HMRC often identifies this common compliance mistake during audits, which can result in heavy fines.
Spending cryptocurrency on goods or services
Using crypto to purchase goods or services has become increasingly common, with traditional vendors providing crypto payment options. When crypto is used to purchase a good or service, the amount spent constitutes a disposal of the asset. Any gain in value from the purchase of the crypto asset to the purchase of the good or service can generate a CGT. This is determined by the crypto’s fiat value used at the time of purchase.
Taxation example when spending cryptocurrency on goods or services
You use 0.5 Ethereum, which was originally bought for £1,000, to purchase a £3,000 luxury watch. While the watch purchase might have involved a simple transaction, a capital gains tax that will need to be paid has been generated.
0.5 Ethereum (Value to purchase watch £3,000) – £1,000 (Original Purchase price)
= £2,000 Profitable Gain
Assuming you have used your CGT allowance for the year, CGT payable is as follows:
Basic Rate Taxpayer = £2,000 x 18% = £360 Tax Payable
Higher Rate Taxpayer = £2,000 x 24% = £480 Tax Payable
Selling the Ethereum before making the purchase does not change the final tax CGT payable.
Mining Cryptocurrency
Crypto mining is how transactions are validated and recorded on a blockchain network. To mine crypto, computers are used to solve complex puzzles and mathematical equations, verify crypto transactions on a blockchain network, and add them to a ledger. Since crypto is a decentralised market, the verification process helps to keep the crypto network secure. Crypto coins (a small percentage of a crypto asset) are rewarded for the first computer to solve a given puzzle, rewarded on a first-to-post basis.
Crypto awarded from mining is considered taxable income and should be recorded on your self-assessment tax return. Any costs associated with the process of mining crypto can be offset against realisable gains. Mined crypto that is later sold at a higher rate than noted in your self-assessment tax return will be liable to CGT. Capital gains are only applied to the differing amount and taxed at your given CGT rate.
Taxation example of Mining Cryptocurrency
You invest in a GPU mining computer and generate 0.2 Bitcoin within a tax year, when Bitcoin is trading at £70,000. The value of your Bitcoin is calculated to be £14,000. You must declare this as income on your self-assessment tax return. Any expenses associated with the mining process can be deducted as an expense. This might include electricity or physical computer hardware. Your final income is then included as part of your total taxable income and paid at your applicable tax rate.
Six months later, you decide to sell the mined Bitcoin when the value of 1 Bitcoin reaches £85,000. CGT must be paid as you have disposed of the crypto asset and generated a capital gain.
This is then calculated as: £85,000 (Sale Price) x 0.2 Bitcoin = £17,000
£17,000 – £14,000 (amount noted in tax return)= £3,000 (Capital Gain)
(Assuming your CGT allowance has already been utilised for the year).
Basic Rate Taxpayer = £3,000 x 18% = £540 CGT Tax
Higher Rate Taxpayer = £3,000 x 24% = £720 CGT Tax
Note, income from mining crypto might result in your total taxable income being pushed into the higher tax rate band. This will further impact the amount of CGT payable on any crypto assets you dispose of, increasing to 24% from 18%.
DeFi Activities
DeFi, or decentralised finance, is an umbrella term for financial services on public blockchains. With DeFi, you can carry out services similar to those supported by banks, such as earning interest, borrowing, lending, buying insurance, or trading derivatives. It takes the basic premise of crypto assets and expands on it, creating an entire digital alternative to traditional banking but without the associated costs, paperwork, or third-party intermediaries.
One everyday DeFi activity is liquidity pool participation, which offers an opportunity for crypto holders to earn passive income on crypto holdings. Users (called liquidity holders) deposit pairs of crypto (e.g. Ethereum and USDC) into a pool. These pools function as automated market makers (AMMs), facilitating token swaps without the need for traditional order books. In return, users earn a portion of the trading fees generated by users swapping these tokens.
Taxation on DeFi activities can be complex, as it covers many transactional activities.
However, tax treatment can be defined under four categories:
- Adding Liquidity: When crypto is added to DeFi activities such as liquidity pools, any previous increases in value must be realised. For instance, if Bitcoin was originally purchased at £70,000 and is valued at £80,000 before being added to a pool, this £10,000 gain must be realised for CGT.
- Removing Liquidity: When crypto is removed from a liquidity pool, any value increases must be realised for CGT. If the crypto value has fallen, then no CGT will arise.
- Rewards from Tokens: Income from liquidity pools, known as rewards, is taxed at the recipient’s given tax band, through self-assessment. This is based on the value of the crypto awarded either at the end of participation or the end of the tax year.
- Selling Rewards from Tokens: As rewards from tokens are issued as crypto, any increases in value at the time of sale, beyond the recorded income tax amount, generate CGT.
Example of Taxable DeFi Activity
You deposit a combined value of £10,000 worth of Ethereum and USDC into a liquidity pool. After one year, you withdraw your crypto from the pool, which is now valued at £15,000. A CGT charge is now payable against the £5,000 gain of your crypto.
£5,000 – £3,000 (CGT yearly allowance) = £2,000
Basic Rate Taxpayer = £2,000 x 18% = £360 Tax Payable
Higher Rate Taxpayer = £2,000 x 24% = £480 Tax Payable
During the liquidity pool participation, £2,000 in rewards were earned. This must be declared as income on your self-assessment and taxed at your given tax rate.
Six months later, you choose to sell the crypto from these rewards. Their value has now increased to £3,000. The £1,000 increase in value compared to the amount detailed in your tax return generates a CGT charge.
£3,000 – £2,000 = £1,000
Basic Rate Taxpayer = £1,000 x 18% = £180 Tax Payable
Higher Rate Taxpayer = £1,000 x 24% = £240 Tax Payable
Staking Cryptocurrency
Staking cryptocurrency is similar to liquidity pooling, but only one crypto asset class is staked. The treatment of staked cryptocurrency follows the same process as pooled liquidity, with income tax payable on rewards and CGT rules on any increase in asset value.
Lending Cryptocurrency
It is possible to lend crypto to investors or individuals, either privately or through a platform or smart contract. This is not dissimilar to lending fiat money through a bank or peer-to-peer lender. Any interest paid due to lending crypto must be recorded as income and is subject to income tax on your self-assessment.
Any gains are subject to CGT if the cryptocurrency is eventually sold for a profit. If the borrower fails to return the full crypto amount upon the settlement date, any losses can be offset against future CGT payments. Documenting the amount not returned as proof of losses to HMRC is important.
Receiving Cryptocurrency through airdrops
A crypto airdrop is when free coins are distributed within a blockchain community to promote a new coin in the market. They are a central part of the DeFi ecosystem and help to promote and support the wider adoption of a new cryptocurrency.
If a crypto asset is received through an airdrop for free with no alternative payment provided, then no tax is payable. CGT rules will still apply if the crypto asset is later sold for a realisable profit.
If a crypto asset is received through airdrop in lieu of a service or payment, such as influencer marketing, then the assets are classed as income. This must be recorded on your self-assessment tax return and is not dissimilar to receiving a fiat cash payment.
Participating in Hard Forks
A blockchain Hard Fork is a change to a blockchain’s programming that makes it incompatible with the old programming system. It may be initiated by a developer as part of routine maintenance/upgrade or created by a faction of the crypto community that wishes to take a different direction from the current blockchain system.
The result is an event in which a change to the blockchain results in two branches: one that follows the previous protocols and one that follows a new version. This can be considered either positive or negative, but it is not unusual; for instance, there are over 100 versions of Bitcoin due to soft/hard forks.
The result is that end users (owners of the crypto before a hard fork) receive coins in the new fork if they choose to upgrade their software. This transfer is not considered a taxable event. A cost basis is applied to calculate any eventual CGT from the sale of a crypto asset following a hard fork. The price paid for your tokens from the previous crypto asset is used for a CGT value.
Burning Cryptocurrency
Burning Cryptocurrency is the process by which tokens (coins) are removed from circulation by sending them to a specific wallet address that cannot be used for transactions other than receiving tokens. Essentially, the tokens are removed from circulation and cannot be accessed, sold, or traded again.
For taxation, the burning of cryptocurrencies results in a nil value or total loss that is not too dissimilar to the liquidation of a company. These losses can be offset against your gains in current or future years to reduce any CGT that might have been applied to other crypto gains.
It is important to note that you do not have to burn crypto to record a loss. Selling a cryptocurrency for below the price you originally paid will also result in a financial loss for the calculation of CGT. You can back claim losses from up to 4 years prior and roll them over to future tax years. HMRC does not limit the number of losses you can offset, and these losses can be indefinitely carried forward to offset against gains in future years.
If crypto assets have been lost or stolen, you can record these losses on your tax return; however, you must obtain documentation to support your claim, such as transactional documents.
Derivative Trading of Cryptocurrency
Crypto derivatives are financial contracts whose value is derived from the price of an underlying cryptocurrency. These instruments allow traders to speculate on the future price movement of a given crypto asset without owning the underlying assets.
The buying and selling of derivatives for taxation purposes are treated in the same way as owning the underlying crypto assets. Capital gain tax is applicable for any realisable gains from derivatives, with high-frequency traders potentially being required to pay income tax on generating regular returns.
Gifting Cryptocurrency
You can gift crypto to your spouse or civil partner tax-free, with no limit to the amount you can gift. Gifting crypto can be a fast and simple process to transfer wealth to your partner, compared to traditional asset transfers. With annual CGT allowances based on individuals, gifting crypto to a partner can be a legal process to reduce your CGT bill when disposing of crypto assets, as well as lowering household income tax on any income-generating DeFi investments.
If you gift cryptocurrency to someone other than your spouse, the gifted crypto will be considered disposed of, with CGT charged at the market value at the time of transfer. The taxation process follows the same methodology as ‘selling crypto for fiat currency’.
Donating Cryptocurrency
An increasing number of charities accept crypto donations, with numerous third-party providers offering solutions for small charities that do not.
Donating crypto to charity in the UK is tax-free and can be recorded on your tax return to reduce capital gains tax. However, individuals wishing to claim gift aid can only do so if the crypto is first converted into GBP. As a result, the sale of crypto assets will generate a capital gains charge before donation. Considering the significance of your total taxable income and any losses or gains from the given crypto assets is essential before deciding whether to donate crypto or convert to fiat currency directly.
It is important to submit this information on your self-assessment tax return and keep a record of any transactional data, regardless of your choice.
How do you pay Crypto Tax
Any taxable gains or income derived from crypto assets can be reported on your annual self-assessment tax return. You must proactively prepare for the upcoming tax bill when submitting your tax information from crypto. Any records should be kept for a minimum of 5 years.
The following documentation will be required to be kept filed:
- Transaction record of a crypto transaction
- Wallet address and exchange records
- Calculations of GBP values at the time of transactions
- Records of pooled costs for section 104 holdings
For further information about crypto tax for business and individuals, read our article on How the UK is Taxing Cryptoassets.
HMRC to Have Access to Crypto Transaction Data from 2026
The Cryptoasset Reporting Framework will come into effect for all UK taxpayers who use cryptoassets on 1 January 2026. These regulation changes will require individual investors to provide additional information to cryptoasset service providers, who will then report this data to HMRC.
The following data must be collected and submitted by crypto-asset service providers:
- Full name
- Address
- Date of Birth
- Tax Residence status
- National Insurance number or Unique Taxpayer Reference (UTP)
- Summary of crypto transactions: Including sales, transfers and exchanges
HMRC will use this data to cross-check taxpayers’ self-assessment returns, ensuring that income and gains from crypto-assets have been correctly reported. Previously, HMRC relied on voluntary disclosure of crypto profits, but with these significant enforcement changes, HMRC will be able to estimate and verify the data disclosed to ensure the correct tax is paid.
At DS Burge & Co, our crypto tax advisors support individuals and businesses across all types of crypto assets. It is important to speak to a specialist adviser to ensure that your self-assessment tax returns accurately reflect any profit or losses and that your portfolio is optimised to minimise taxation.
Conclusion
As HMRC intensifies crypto legislation and taxation enforcement, compliance is no longer optional. With a broad range of crypto assets and decentralised finance options, correctly complying with crypto legislation and minimising your tax burden can be a complex task.
Failure to correctly file tax returns for crypto gains can result in significant fines and even criminal proceedings. It is therefore vital that you seek specialist advice to ensure compliance and proactive tax minimisation.
At DS Burge & Co, our team of tax specialists helps clients navigate the complexities of Crypto Asset taxation. Our dedicated crypto tax accountants can advise and support individuals and businesses on all types of crypto activity, from self-assessment to HMRC disclosures.