If You Have Bought, Sold, or Earned Cryptocurrency in the UK, You Might Need to Pay Tax on It

If you have bought, sold, or earned cryptocurrency in the UK, you might be wondering if you need to pay tax on it. Many people think crypto is outside the tax system

If you’re buying, selling, or doing anything with crypto that makes you a profit, you might need to pay this capital gains tax. The UK tax authority HM Revenue and Customs (HMRC) sees crypto like Bitcoin as an asset, not actual money. So when you make a profit by getting rid of your crypto, you’ll likely owe Capital Gains Tax or CGT.

HMRC has clear rules on this in their Cryptoassets Manual. They treat crypto like other investments, such as stocks. You make a gain or loss when you dispose of your crypto.

Capital Gains Tax Records and Filing

It’s crucial to keep track of all your crypto transactions. For each transaction, you’ll need to record the following:

HMRC might ask for these records later on, and some exchanges don’t keep them for very long. You can use programs like Koinly or CoinLedger to import your transaction history and automatically calculate your gains or losses.

Capital Gains Tax Rates

Now, let’s look at how much CGT you’ll pay on your crypto gains. The rate depends on your total income for the year since CGT is linked to your income tax band. HMRC changed the CGT rates in the Autumn Budget 2024 for disposals after October 30, 2024. Before that, the rates were 10% for basic rate taxpayers and 20% for higher and additional rate taxpayers. Now they’re higher at 18% and 24%.

For the 2024/25 tax year, here’s how it works:

Capital Gains Tax Transactions in the UK

Not every crypto transaction will trigger CGT, but many do. According to HMRC, a disposal occurs when you cease to own the crypto and someone else begins to own it. Here are some transactions that count as disposals and trigger CGT:

Some actions won’t trigger CGT. Merely holding crypto in your wallet without doing anything with it doesn’t incur tax. You will only pay tax when you dispose of it.

Transferring crypto between your own wallets is also tax-free as you aren’t changing ownership. Buying crypto with GBP currency doesn’t incur tax, but you should keep track of the cost basis for later. Also, gifting to your spouse or civil partner is tax-free, which can help if they have a lower tax band.

Crypto Capital Losses

What if you lose money on your crypto? You can use those losses to lower your tax bill, which is a nice perk. If you sell or dispose of your crypto for less than your cost basis, you’ve made a capital loss. HMRC lets you use these losses to reduce your gains, which lowers your CGT.

Here’s an example. You made a £10,000 gain from selling Bitcoin, but sold some Ethereum at a £4,000 loss. Your net gain is £10,000 minus £4,000, which is £6,000. Now subtract your £3,000 CGT allowance for the 2024/25 tax year. That leaves £3,000 to tax instead of £7,000 without the loss. If you’re in the basic rate band at 18%, you’d owe £540 in tax instead of £1,260.

Carrying Losses Forward:

If your losses are more than your gains, you can carry the extra losses forward to future years. For example, if you have £8,000 in losses and £3,000 in gains, your net gain is zero, and you have £5,000 in losses left. You can use that £5,000 to offset gains in the next tax year or later. However, you must report these losses to HMRC within four years of the tax year in which they occurred.

If your crypto becomes worthless, for instance, if a coin’s value drops to zero, you can make a negligible value claim with HMRC. This allows you to treat it as if you sold it for zero, so you can claim a loss. If you bought a coin for £2,000 and it’s now worth nothing, you can claim a £2,000 loss. However, if your crypto was stolen or lost, HMRC does not consider that a disposal, so you cannot claim a loss for theft.

You can also use tax-loss harvesting to save on taxes. This means selling crypto at a loss on purpose to offset gains. If you sell and buy back the same crypto within 30 days, HMRC adjusts the cost basis to stop you from claiming artificial losses. Keeping good records of your losses is key so that you can prove them to HMRC if they ask.