Do I Pay Crypto Tax in the UK?

Do I Pay Taxes on Cryptocurrencies in the UK?

Yes. The key to understanding UK crypto tax laws is by understanding how it is classified. The HRMC was one of the first tax offices worldwide to offer guidance on the issue. They have released regularly updated crypto tax UK guidelines over the last few years.

HMRC cryptocurrency guidelines classify Bitcoin and altcoins as an asset. As such, the HRMC don't see crypto as a currency like GBP. Instead, the HRMC sees crypto as a capital asset like a house, car, investment property, or stock.

Understanding how the HMRC defines crypto is crucial to understanding how it is taxed.

Income Tax Vs Capital Gain Tax

While there aren't specific crypto tax UK regulations, it is subject to either income tax or capital gains tax.

What type of UK crypto tax you need to pay depends on the type of transactions you make.

If you are earning crypto, it will be taxed like any other income.

However, if you're making capital gains through crypto, it is treated as a capital gains tax.

How Does UK Capital Gains Work?

Most counties have short and long term capital gains taxes. However, the UK doesn't have this distinction. All capital gains taxes get taxed in the same way in the UK.

As you can see, UK crypto tax depends on how much money you earn. However, calculating the exact total depends on other factors.

To figure out how much tax you need to pay on crypto gains, you need to find your cost basis. Cost basis is simply how much it costs to purchase an asset, including transaction fees.

For purchases made via GBP, it’s simple to calculate — just find the price you paid for it. However, there are a few other ways that people acquire crypto, like a fork or an airdrop. If this is the case, you need to find the fair market price of the coin on the day you receive it. For example, if you received 100 airdropped tokens valued at £0.20 each in 2019, then your cost basis is £0.20 X 100 = £200.

Now that you have your cost basis finding your Capital Gains or losses is simple. Capital Gains or losses are the difference in value from when you acquire an asset to when you dispose of it (i.e., sell, swap, spend, or gift).

Of course, not all assets go up in price. So, if you have made a profit, then it is considered a capital gain. If you've made a loss, then it is considered a capital loss. A capital loss isn't taxable; however, it can be used to reduce a tax bill.

Let's use an example to show how it works.

How to Minimise Cryptocurrency Taxation in the UK?

There are several ways that you can minimise UK crypto tax.

Can I take advantage of tax breaks?

HMRC cryptocurrency tax can be lowered by taking advantage of a number of different tax breaks.

Your three main options are:

Personal Income Tax

The first £12,570 of income is tax-free. This is important when you are calculating capital gains because it helps define which Income Tax band you occupy.

For example, if you earn over £50,000, you probably think that puts you into the Higher Band (20%) for Capital Gains Tax. However, that's not how things work. When you're calculating Capital Gains, you should only count taxable income.

Taxable income is your income minus your Income Tax Allowance (plus any other Income Tax relief)

So, in this example, if you earned £55,000 income, you can subtract £12,570. This brings your taxable income down to £42,430, which puts you below the Higher Rate band of 20%.

It's worth noting that if you earn over £125,140 per annum, you don't get a personal tax-free allowance.

Trading and Property Allowance

Additionally, you can take advantage of the Trading and Property Allowance. This tax break allows the first £1000 of income from trading or property to be tax-free. If you have income from trading and property, this allowance is double.

Capital Gains Tax-Free Allowance

The UK also has a generous Capital Gains Tax Free Allowance of £12,300. This allowance means that you only pay Capital Gains Tax after you've gone over this allowance.

So, if you don't make more than £12,300 from capital gains over the financial year, you don't pay Capital Gain Tax.

What Rate of Income Tax Will I Pay on Crypto Income

If you need to figure how much income tax you'll pay on your crypto income, you need to understand the crypto rates.

UK Crypto Tax Examples

While we've worked out what you'll pay for capital gains tax, let's look at how you can calculate crypto income tax.

Let's say you make an additional £8,000 income from your crypto investments. Here is how you can calculate how much income tax you'll pay.

For example, if your income is £40,000 for the 2023 financial year. First, let's remember that £12,570 of this income is tax-free. As you'll see, this puts you in the Basic tax band, which means you'll pay 20% of tax.

Therefore, 20% of tax on your £8,000 gains, which means £1,600.

Best Crypto Exchanges in the UK

Coinbase

Coinbase Review Open an Account

Coinbase is one of the biggest and safest cryptocurrency exchanges for UK investors. They offer over 60 tradeable cryptos and have an excellent and easy-to-use interface.

Another big plus is the Learn platform that not just teaches users about crypto but also provides them with crypto rewards as they learn.

The only downside is that the fees are a little higher than average. Coinbase Pro has lower fees; however, it's less beginner-friendly.

eToro

eToro Review Open an Account

eToro was formed in 2007 and is a hugely popular way to buy crypto in the UK. It offers access to about 15 different coins and has good educational tools.

eToro is perhaps best well-known as a great copy trading platform. This fact makes it an excellent option for beginner traders. It's easy-to-use, it has paper trading facilities, and it has decent pricing.

The downside for crypto investors is that eToro has a limited roster of coins.