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What Taxes Do I Have To Pay On Crypto?
The regulatory environment surrounding crypto in the UK is still far from clearly defined.
This has left many people unsure about the taxes they should be paying on their crypto, especially if they decide to cash in their portfolio.
However, the tax that most people will need to pay, generally speaking, falls into just two categories – Capital Gains Tax (CGT) and Income Tax.
Capital Gains Tax
Capital Gains Tax is a tax that’s due on the disposal of any asset that increases in value (with a tiny handful of exceptions), including cryptocurrency.
The crypto investors who are likely to need to consider CGT are those that have bought and held coins then sold them at a profit, ie disposed of them.
Disposal can also include exchanging one crypto for another, gifting crypto to someone or using it to pay for real-world goods or services.
From my experience, selling a holding and realising the profits is the typical behaviour of most people who’ve dabbled in crypto so CGT is the one you need to watch out for.
To calculate your gains, and hence the tax due, follow these steps:
- Work out your allowable costs and deduct them from the money received from selling your crypto. These include the cost of buying the tokens in the first place, any transaction fees for the purchase or sale and any professional fees incurred, such as advice you might have sought during the process.
- Offset your Annual Exempt Amount. This is the amount of profit or gains you’re allowed before tax is due. It’s been slashed by successive Governments and currently stands at £3,000 (2024/25 tax year) per year. You’ll need to pay tax on any profit above these after you’ve deducted your costs from it.
The amount of tax you’ll pay depends on how much you earn. Most people will pay between 10-24% depending on which tax band they fall into.
There are certain things that you can do to legally reduce your CGT bill which I’ve written about here.
Income Tax
If you didn’t buy and hold your crypto but acquired it in another way, then you may need to pay income tax.
Examples of situations where income tax may be payable include:
- Receiving crypto as payment for your services.
- Mining cryptocurrency.
- Frequent trading.
- Receiving rewards from staking your crypto.
When assessing whether your crypto activities should be subject to income tax, you need to consider a number of factors, such as the frequency of your trades, the level of organisation behind your crypto transactions and also the intention behind your activities.
Again, the amount of tax you’ll pay depends on how much you earn and which rate of tax you normally pay, ie basic rate, higher rate or additional rate. Additionally, National Insurance contributions may also apply.
Crypto Accounting
No matter how you’ve acquired your crypto it’s vital that you keep detailed records of all your transactions as you need it to comply with HMRC’s requirements.
Not only will this help you stay compliant, but it will also mean that you – or an accountant – will be able to evidence your tax calculations and make the whole process go much more smoothly.
Paying Your Crypto Tax
Whether your crypto gains fall under Capital Gains Tax or Income Tax, you’ll need to declare your earnings on a Self-Assessment tax return which has to be completed by the end of January in any given tax year, which runs from April to April.
If you’re self-employed you probably already do this (or get an accountant to do it for you). If not, you’ll need to register for a Government Gateway account and sign up for self-assessment.
If you don’t complete a tax return you could potentially be fined or liable for and be liable for interest charges on any unpaid tax that’s owed to HMRC.
It’s important to note that in the UK all taxes are paid to HM Revenue and Customs (HMRC). Unfortunately there have been cases of scammers operating fake crypto investing platforms who’ve convinced people who were unaware of the rules to pay them large sums of money under the guise of collecting taxes.
Conclusion
With the explosion in crypto ownership in the UK (an estimated 7 million people now hold some in their portfolios) an increasing number of people are going to face the issue of crypto taxes.
There’s a wealth of information online which will help you through the process, plus several dedicated crypto accountancy platforms which you can link with your accounts to produce a summary of what you might owe.
But it’s important to get things right to avoid falling foul of this law which is why you should always consider employing a cryptocurrency tax expert to help complete your return.
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Disclaimer: Nothing on this website constitutes financial advice. The information provided is for educational purposes only.
