Check the complete version here: https://cryptotaxcalculator.io/uk/guides/crypto-tax-uk-hmrc/

In the UK, Her Majesty's Revenue and Customs (HMRC) treats crypto transactions as taxable events, meaning you may owe taxes on your capital gains or income derived from crypto.

This article provides a step-by-step overview of how to calculate your cryptocurrency taxes in the UK.

From identifying taxable events to calculating your liabilities for both Capital Gains Tax and Income Tax, we'll break down everything you need to know to stay on top of your obligations.

Before you begin calculating your crypto taxes you need to make sure you have accurate records of all your transactions in Pounds Sterling (GBP).

These can be obtained from centralised exchanges, usually as a CSV spreadsheet. If you are trading on international exchanges you need to value these transactions in GBP in a consistent manner, such as by cross-referencing rates on a local exchange.

If you have been trading on then you will either need to use software (such as ) to calculate your transaction data clearly, or else keep manual records.decentralized exchanges (DEXs)Crypto Tax Calculator

In addition to tracking your transactions and assets in GBP, you need to keep a record of the following with each transaction:

You may also want to record the following information on a regular basis, to make your books easier to review in case of an audit.

If you have a lot of trades spread across multiple exchanges and DeFi protocols, then you should consider using which automatically analyses all relevant transaction data for you, calculates your tax owed, and summarises it in a professional report ready for the HMRC.crypto tax software like Crypto Tax Calculator

Before calculating your crypto taxes, you need to understand which activities trigger a taxable event under UK law.

You will then need to identify any taxable events in the transaction records you made in Step 1.

HMRC treats cryptocurrencies as property, and many transactions involving crypto are considered disposals, which may result in Capital Gains Tax (CGT) or Income Tax, depending on the nature of the transaction.

As such, you will need to divide your taxable events into either CGT or Income Tax events.

These events occur when you dispose of your cryptocurrency.

"Disposal" includes selling, trading, or gifting crypto assets (except to a spouse or civil partner).

Each event triggers a CGT liability if the transaction results in a gain.

However, recording losses is equally important, as they can offset gains and reduce your overall tax burden.

The following may be considered CGT events:

Any profit made when you sell crypto for fiat currency (eg, GBP) is a taxable event.

Exchanging one cryptocurrency for another (eg, Bitcoin for Ethereum) is treated as a disposal for tax purposes.

Spending cryptocurrency on goods or services is considered a disposal.

Gifting crypto to someone triggers CGT based on the market value at the time of the gift. Gifting to registered charities or your spouse or civil partner does not trigger a taxable event.

Disposing of NFTs is treated similarly to crypto disposals, with gains subject to CGT.

Selling tokens received through an airdrop is a taxable disposal.

Tokens received without any action (eg, unsolicited distributions) are not taxed as income upon receipt. Instead, they are subject to Capital Gains Tax (CGT) when sold, with the cost basis typically being zero or the fair market value at the time of receipt if explicitly stated by HMRC.

Tokens earned through performing tasks (eg, completing activities) are taxed as income at the market value in GBP upon receipt. When sold, the gain or loss is subject to CGT, calculated using the market value at receipt as the cost basis.

Adding liquidity: If adding assets to a liquidity pool results in a change of ownership or creates a new token (e.g., LP tokens), it may be considered a taxable disposal, with CGT applying to any gains.

Removing liquidity: Removing assets from a liquidity pool may also be a disposal, potentially triggering CGT based on the gain or loss relative to the cost basis.

Liquidity pool rewards are generally treated as taxable income upon receipt, subject to Income Tax.

Example: You add 1 ETH (worth £1,500) and 1,000 USDC (worth £1,000) to a liquidity pool, triggering a potential capital gains event if the tokens are considered disposed of. Later, you remove your liquidity, receiving 0.9 ETH (worth £1,350) and 1,100 USDC (worth £1,100), which may also trigger CGT based on their current market value. Any rewards (e.g., £50) earned from the pool are subject to income tax.

Certain events are classified as income and are subject to Income Tax instead of CGT. These typically involve receiving cryptocurrency as payment or rewards.

Cryptocurrency earned through staking is considered income at the market value at the time of receipt.

Mining rewards are taxed as income. If mining is done as a business, tax obligations like VAT registration may apply.additional

If you actively participate to receive an airdrop (e.g., completing tasks), the tokens are treated as income at their market value upon receipt.

Receiving cryptocurrency as payment for goods or services is treated as income at its market value when received.

Earnings from yield farming or lending crypto in DeFi platforms are taxed as income at the time they are received. However, depositing into and withdrawing from a liquidity pool may be treated as a disposal, which is a capital gains event.

The HMRC uses an average cost basis to calculate the cost on capital gains. For example, if you buy 1 BTC at £1,000 and a second BTC for £3,000, your average cost would be £2,000.

In the above example, you can see how the Average Cost Basis increases from (a) to (b), and a capital gain is realised against this average cost at time (c).

Any trades that you make on the same day with the same cryptocurrency are first grouped together before adding the leftover to the average cost basis pool.

In this scenario, the buy transactions on Jan 4th are grouped with an average cost basis of £2,000 and the sell on the 4th is applied to this daily average cost basis, realising a gain of £3,000.

The remaining 1 BTC with an average cost basis of £2,000 is then added to the pool making a new average pool of £1,250.

The same is also true for fees, meaning any fees paid within the same day will also be grouped together.

In this scenario, the two sell transactions both occur on the 5th of January, and each have a different fee rate.

Due to the Same Day rule, the fees for these two transactions are grouped, resulting in an average fee rate of 15%.

Within , the value of the fee shown in the transaction breakdown table will be based on this calculated average fee for all transactions within the same day, rather than the rate for the individual transaction.Crypto Tax Calculator

That is, each transaction will show a 15% fee rate, with the value of the fee being £300 for each, rather than £200 for the first transaction and £400 for the second.

To avoid people taking advantage of the average cost basis, and tax-free threshold, the HMRC introduced the bed and breakfast rule, named after a tax loss harvesting strategy where investors would sell their stock on the last day of the financial year and buy it back the next day.

This rule essentially states that if you buy back the cryptocurrency within 30 days of its disposal, regardless of the tax year, you will "void" the capital gains event previously associated with this transaction, and instead rematch the buy and the sell.

Violation of Bed and Breakfast rule

You buy 1 BTC with an average cost of £10,000.

You then sell the BTC realising a gain of £12,300 in this tax year to maximise the tax-free threshold. You then re-buy the BTC in the next financial year, with the new average cost basis being £24,000 per BTC.

Apply Bed and Breakfast rule

The correct application of the BnB rule matches the re-buy with the sales in the last 30 days. In this case, we adjust our gain to a loss of 1,700.

Additionally, the average cost basis continues to be £10,000 per BTC.

Deduct transaction fees (in GBP) from your gains to reduce your taxable amount.

HMRC's rules specify that only costs that are incurred as part of acquiring, disposing or enhancing the value of the asset can be deducted from your gains."wholly and exclusively"

Fees must be directly incurred for the purpose of acquiring, disposing of, or enhancing the value of the asset.

With that in mind, these are some of the fees that may be eligible to be used as deductions:

The following fees are not likely to be deductible from your tax unless you can demonstrate they were "wholly and exclusively" incurred as part of acquiring, disposing or enhancing the value of the asset:

For Sales or Disposals: Deduct transaction fees from the proceeds to calculate your net gain or loss.

For Acquisitions: Add transaction fees to the purchase price to adjust your cost basis.

Use software like to automate your fee accounting and help ensure you're getting the deductions you're entitled to. Crypto Tax Calculator automatically categorises your fees into deductible and non-deductible types, which are factored into your tax report.Crypto Tax Calculator

Now that you have determined your average cost-basis and appropriately grouped your transactions -- including any special rules -- you are ready to calculate the capital gains or losses for each taxable event.

Losses can be deducted from gains to reduce your overall taxable amount.

If your capital losses exceed your gains in a tax year, the excess losses can be carried forward to offset capital gains in future tax years. To utilize this benefit, you must first report the losses to HMRC in your Self Assessment tax return.

When you earn cryptocurrency through activities like mining, staking, or receiving payments, these earnings are subject to Income Tax. You identified these activities in Step 2.

Calculating the taxable income requires determining the fair market value of the cryptocurrency at the time it is received.

If you have already calculated the fair market value of your income earning activities, you can now add that together to determine your overall income from crypto.

Otherwise, follow the steps below to calculate your income from crypto:

You mine 0.5 BTC on January 15th. The market value of 1 BTC on that date is £20,000.

Include this £10,000 in your Self Assessment tax return under income.

Once you've calculated your crypto-related capital gains, losses, and income, the next step is to determine your total tax liability (ie, the actual amount of tax you owe based on your trading activity).

This involves integrating these figures with your other taxable income and capital gains for the year.

Here's how to do it:

HMRC requires you to report all capital gains for the tax year, not just those from crypto. This includes gains from things like selling stocks and shares.

Example:

Use the following rates for gains above the allowance:

Your rate depends on your total taxable income, including crypto income and other sources.

Example:

Combine your crypto income (e.g., staking, mining, payments) with your salary, self-employment income, or other earnings.

Apply the standard Income Tax rates to your total taxable income:

Example:

Deduct allowable capital losses from your total capital gains to reduce your CGT liability.

If losses exceed gains, carry the excess forward to future tax years to offset gains.

Example:

Add together:

Example:

Report all calculations and figures in your Self Assessment tax return.

Ensure crypto income and gains are listed in the designated sections.

Reporting your crypto taxes is simple with Crypto Tax Calculator. Follow these steps to generate accurate reports and stay compliant with the HMRC:

If you're new to Crypto Tax Calculator, start with our Getting Started Guide for an overview of how the platform works.

Need more help? Visit our UK Report Guides or explore the Help Center for step-by-step instructions.

Decentralized Finance (DeFi) transactions are taxed in the UK based on their nature and the specific activity conducted.

HMRC has not issued extensive DeFi-specific guidance but applies general cryptocurrency and financial asset tax principles to these transactions.

Here's an overview of how common DeFi activities are taxed:

The HMRC only considers airdrops as income tax if you did something to "earn" the reward.

When you sell the airdrop, the cost basis is the market value at the time of receiving the airdrop reward.

However if you did something to "earn" the airdrop, then the HMRC considers this miscellaneous income for tax purposes.

It is unclear exactly where this border lies, but for example, if you received UNI for trading on Uniswap, then this could potentially be classified income since you did have to do something to receive this reward.

You should talk to your accountant about your individual circumstances.

In Crypto Tax Calculator, you can classify transactions as an airdrop if it is not considered income, otherwise you can classify the trade as income.

The that staking rewards are taxed as income.HMRC has stated

Crypto Tax Calculator will separate out staking rewards as income earned.

Once you have earned income from staking, the initial value forms the cost basis for your capital gains or loss. In this way, you are not "double taxed". For example, if you receive £10 of ETH for staking, and later sell the ETH for £100, your income is £10 and your capital gain is £90.

Mining has different tax implications depending on whether you are a hobby or business miner.

For hobby mining Crypto Tax Calculator will calculate your initial cost basis as the market value when receiving the reward.

This market value is also treated as income by the HMRC.

Forking essentially creates a new cryptocurrency that will go into its own holding pool. The cost basis of the forked cryptocurrency is calculated based on the crypto assets already held by the individual.

The sale of non-fungible tokens (NFTs) is considered a disposal, similar to selling other cryptoassets. The market value of the NFT in GBP at the time of sale is used to calculate the gain.

Cryptocurrency investors in the UK need to include specific forms when filing their tax returns to HMRC.

The information provided on this website is general in nature and is not tax, accounting or legal advice. It has been prepared without taking into account your objectives, financial situation or needs. Before acting on this information, you should consider the appropriateness of the information having regard to your own objectives, financial situation and needs and seek professional advice. Cryptotaxcalculator disclaims all and any guarantees, undertakings and warranties, expressed or implied, and is not liable for any loss or damage whatsoever (including human or computer error, negligent or otherwise, or incidental or Consequential Loss or damage) arising out of, or in connection with, any use or reliance on the information or advice in this website. The user must accept sole responsibility associated with the use of the material on this site, irrespective of the purpose for which such use or results are applied. The information in this website is no substitute for specialist advice.