Disclaimer: This page is for general information purposes only and should not be used as a substitute for consultation with tax professionals. The general tax guidance on HM Revenue and Customs (HMRC) does not address all the various cryptocurrency transactions and resulting tax implications. Guidance from the HMRC may be supported or challenged by the United Kingdom courts.

Is cryptocurrency taxable?

The taxable events of crypto transactions are treated as either capital gain/loss or income, depending on the type of transactions the users have done. In general, users need to report a transaction on their United Kingdom individual income tax return when they dispose of cryptocurrency. On the website of HMRC, disposition of cryptocurrency means as follows:

  • Selling tokens for money

  • Exchanging tokens for a different type of token

  • Using tokens to pay for goods or services

  • Giving away tokens to another person (unless it’s a gift to their spouse or civil partner)

How is my cryptocurrency taxed?

When you dispose of cryptocurrency, it will be subject to capital gain/loss. In general, it is calculated by using the proceeds less the total cost basis (including the cost of the digital assets and selling transaction fee) of the crypto.

Crypto.com Tax supports users who are engaging in cryptocurrency transactions for investment purposes only. Users participating in cryptocurrency transactions that constitute ‘business activities cannot apply these calculations for the United Kingdom capital gain tax. Therefore, this may not be the right tool for you if your crypto transactions constitute business activities as opposed to hobby transactions.

Cryptocurrency tax deadline

Taxable cryptocurrency transactions need to be reported on your Income Tax return for individuals (SA 100 form). The income tax filing deadline is the end of January every year if you lodge the online tax return. The deadline would be the end of October if you lodge the paper tax return.

How do I file crypto tax reports?

Crypto.com Tax is a user-friendly tax product to generate tax reports for tax filing. Please follow the below steps to finish the crypto tax filing.

  1. Register your account in Crypto.com Tax

  2. Import your transactions in our product in 5 ways:

    1. API synchronization with the supported wallets/exchanges

    2. Import with supported blockchain public address: BTC and ETH & ERC-20 Tokens

    3. Import the csv file exported from our supported wallets/exchanges

    4. Import our Crypto.com Tax CSV for the non-supporting wallets/exchanges

    5. Manually add your transactions

  3. Generate the below tax reports on the page of Tax Reports :

    1. United Kingdom Tax Summary for completing the Capital Gains Tax Summary (SA 108 form). ,

    2. Income report to fill in the miscellaneous income (gross income) on box 17 of page TR3 in the SA 100 form mining income, rewards etc; fill in the employment income on box 1 in the SA 102 form e.g. employment income.

    3. Expense report to fill in the allowable expense on Box 18 of page TR3 in the SA 100 form e.g. Cost, mining expense

    4. Transaction history csv file for keeping the books and records

  4. After completing the SA 102 and 108 forms, users can attach them with the individual tax return (SA 100 form) to finish the tax filing

Tax Rules on Crypto Transactions

Buying cryptocurrency (e.g. GBP → BTC)

Buying cryptocurrency is not considered a taxable event. However, it’s extremely important to keep track of the acquisition cost (with associated fees), as it becomes the cost basis of the cryptocurrency and will be used for calculating capital gains/losses for subsequent taxable events (i.e. dispositions etc.)

Selling cryptocurrency (e.g. ETH → GBP)

Selling cryptocurrency for fiat currency is considered a taxable event. The capital gains/losses can be calculated by subtracting the cost basis and the associated fees from the proceeds. Since the United Kingdom uses the sharing pool method, we will explain all the 3 steps of matching rules in the below examples. Please find its definition in the session of the cost basis method.

Example 1:

  • Buy 10 ETH for GBP 10,000 on 1 Feb 2020

  • Buy 5 ETH for GBP 8,000 on 5 Feb 2020

  • Buy 4 ETH for GBP 8,000 on 10 Aug 2020

  • Sell 5 ETH for GBP 10,000 on 10 Aug 2020

Results:

  • Since there is a purchase on the same day of disposal, we should deduct the cost basis of the same day first. If there are no purchases within the next 30 days of disposal, we can take the weighted average from the section 104 pool to calculate the cost basis.

  • Cost basis per coin from the same day purchase: GBP 8,000/4 = GBP 2,000

  • Cost basis per coin from the section 104 pool: GBP (10,000+8000) /15 = GBP 1,200 per ETH

  • Proceeds: GBP 10,000

  • Total cost basis for 5 ETH: GBP 1,200 + GBP 2,000 * 4 = GBP 9,200

  • Capital gain/loss: GBP 10,000 - 9,200 = GBP 800

Example 2:

  • Buy 10 ETH for GBP 10,000 on 1 Feb 2020

  • Buy 5 ETH for GBP 8,000 on 5 Feb 2020

  • Sell 5 ETH for GBP 10,000 on 10 Aug 2020

  • Buy 4 ETH for GBP 4,000 on 20 Aug 2020

Results:

  • Since there are no purchases on the same day of disposal, we can deduct the cost basis during the 30 day period before using the weighted average from the pool to calculate the cost basis.

  • Cost basis per coin from during the 30 days: GBP 4,000/4 = GBP 1,000

  • Cost basis per coin from the section 104 pool: GBP (10,000+8000) / 15 = GBP 1,200 per ETH

  • Proceeds: GBP 10,000

  • Total cost basis for 5 ETH: GBP 1,200 + GBP 1,000 * 4 = GBP 5,200

  • Capital gain/loss: GBP 10,000 - 5,200 = GBP 4,800

Example 3:

  • Buy 10 ETH for GBP 10,000 on 1 Feb 2020

  • Buy 5 ETH for GBP 8,000 on 5 Feb 2020

  • Sell 5 ETH for GBP 10,000 on 10 Aug 2020

Results:

  • Since no assets are acquired on the same day/30 days after disposal, neither the same day nor the “bed and breakfasting” rules apply in this case. We would use the last step of the matching rule - section 104 pool to calculate the cost basis.

  • Cost basis per coin: GBP (10,000+8000)/15 = GBP 1,200 per ETH

  • Proceeds: GBP 10,000

  • Total cost basis for 5 ETH: GBP 1,200 * 5 = GBP 6,000

  • Capital gain/loss: GBP 10,000 - 6,000 = GBP 4,000

Trading one cryptocurrency for another (e.g. ETH → BTC)

Selling cryptocurrency for another cryptocurrency is considered a taxable event. The capital gains/losses can be calculated by subtracting the cost basis from the FMV (fair market value) of the coins you receive.

Example:

  • Buy 10 ETH for GBP 10,000

  • Sell 5 ETH for 1 BTC (FMV per BTC is GBP 12,000)

Results:

  • Cost basis per coin: GBP 10,000/10 = GBP 1,000 per ETH

  • Proceeds: GBP 12,000

  • Total cost basis for 5 ETH: GBP 1,000 * 5 = GBP 5,000

  • Capital gain/loss: GBP 12,000 - 5,000 = GBP 7,000

Sending cryptocurrency to others

Payment

Paying cryptocurrency for services and goods is considered a taxable event. It becomes non-taxable when personal use asset exemption applies. (See details in “Other Tax Rule”) The capital gains/losses can be calculated by subtracting the cost basis from the FMV (fair market value) of the coins you send.

Example

  • Buy 10 ETH for GBP 10,000

  • Send 5 ETH for some service (FMV per ETH is GBP 2,000)

Results:

  • Cost basis per coin: GBP 10,000/10 = GBP 1,000 per ETH

  • Proceeds: GBP 2,000 * 5 = GBP 10,000

  • Total cost basis for 5 ETH: GBP 1,000 * 5 = GBP 5,000

  • Capital gain/loss: GBP 10,000 - 5,000 = GBP 5,000

Gift

Sending a gift is similar to disposing of the coins which are subject to capital gains/losses. It is calculated by subtracting the cost basis of the coin from the FMV of the cryptocurrency on the date of gifting.

When the cryptocurrency is ultimately sold by the recipient of the gift, the proceeds of disposition are the FMV on this date.

Example:

  • Buy 10 ETH for GBP 10,000

  • Send 5 ETH to friends as a gift (FMV per ETH is GBP 2,000)

Results:

  • Cost basis per coin: GBP 10,000/10 = GBP 1,000 per ETH

  • Proceeds: GBP 2,000 * 5 = GBP 10,000

  • Total cost basis for 5 ETH: GBP 1,000 * 5 = GBP 5,000

  • Capital gain/loss: GBP 10,000 - 5,000 = GBP 5,000

Donations

In general, the donation is not subject to capital gain/loss and is entitled to income tax relief when the donor does not receive anything in return. However, there are two exceptions:

  • Where the individual sells the tokens to the charity for more than the acquisition cost, then they will realize a gain that is taxable as normal.

  • An individual makes arrangements with a charity to get some form of kickback/financial advantage. Where all 3 conditions are satisfied, the donor loses any tax relief that they would have been entitled to claim, had the donation not been tainted.

    1. The donation to the charity and arrangements entered into by the donor are connected.

    2. The main purpose of entering into the arrangements is for the donor, or someone connected to the donor, to receive a financial advantage directly or indirectly from the charity.

    3. The donation isn’t made by a qualifying charity-owned company or relevant housing provider linked with the charity to which the donation is made.

Receiving cryptocurrency other than direct purchase or transfer

Both receiving cryptocurrency and its subsequent disposal are considered taxable events except receiving the crypto as a gift that is only taxable upon disposal. This will apply to multiple cases, including airdrops, payment (e.g. employment income) mining, forks, and rewards (e.g. staking rewards or referral bonus). These receiving types of crypto transactions will be taxable as miscellaneous income at FMV. The income should be reported on the Income session of the SA 100 form. Also, they will be subject to capital gains/losses at future dispositions. The gain/loss is calculated by subtracting the cost basis from the FMV of the cryptocurrency on the date of disposition.

Mining

In general, the mining income is taxable at the time of receipt. Users will have miscellaneous income equal to the FMV of the new cryptocurrency when it is received. Also, it is subject to capital gains/losses at dispositions. The cost basis of the received coins is equal to the FMV at the time of receipt. The gain/loss is calculated by subtracting the cost basis from the FMV of the cryptocurrency on the date of disposition. On the other hand, the related cost of mining such as electricity costs/ buying equipment is categorized as allowable expenses.

Example:

  • Receive 10 ETH from mining (FMV per ETH is GBP 10,000)

  • Sell 1 ETH for GBP 12,000

Results:

  • Cost basis per coin: 10,000 per ETH

  • Proceeds: GBP 12,000

  • Total cost basis for 1 ETH: 10,000

  • Capital gain/loss: GBP 2,000

Forks

Hard fork takes place when there is a split on the new cryptocurrency that you currently hold. Similar to mining, users will have miscellaneous income equal to the FMV of the new cryptocurrency when it is received.

Also, they are subject to capital gains/losses at dispositions. The cost basis of the received coins is equal to the FMV at the time of receipt. The calculation of capital gains/losses is the same as mining only when users do not know the cost basis of the original token. According to HMRC guidance, costs must be split on a 'just and reasonable basis. HMRC has not dictated any specific rules for apportioning, but it is standard practice that the cost of the original token is apportioned between the old and new token, pro-rata in line with the respective market values of each token the day after the fork. Please refer to the below example that we pro-rata the cost basis after a stock split.

In addition, a soft fork does not create a new coin so you do not receive any income when it happens.

Example:

  • Buy 1 unit of Token A for GBP 10,000

  • Hard fork split into Token B (FMV per Token B is GBP 8,000)

Results:

  • Cost basis per Token A: GBP 12,000/ (8,000+12,000) * 10,000 = GBP 6,000 (FMV per Token A is GBP 12,000)

  • Cost basis per Token B: GBP 8,000/ (8,000+12,000) * 10,000 = GBP 4,000

Airdrops

Airdrops are free coins you received from a marketing campaign or an event.

In general, coins from airdrops are taxable at the time of receipt. Similar to mining, users will have miscellaneous income equal to the FMV of the new cryptocurrency when it is received. Also, they are subject to capital gains/losses at dispositions. The cost basis of the received coins is equal to the FMV at the time of receipt. The calculation of capital gains/losses is the same as mining.

Rewards

You can get crypto rewards in several ways, including but not limited to:

  • Stake/Earn rewards and bonus

  • Referral bonus

In general, the reward income is taxable at the time of receipt. Similar to mining, users will have miscellaneous income equal to the FMV of the new cryptocurrency when it is received. Also, they are subject to capital gains/losses at dispositions. The cost basis of the received coins is equal to the FMV at the time of receipt. The calculation of capital gains/losses is the same as mining.

Gift

The received coins from the gift are not taxable at the time of receipt. However, they are subject to capital gains/losses at dispositions. The calculation of capital gains/losses is the same as mining.

Example:

  • Receive 10 ETH from friends as a gift (FMV per ETH is GBP 1,000)

  • Sell 5 ETH for 1 BTC (FMV per BTC is GBP 12,000)

Results:

  • Proceeds: GBP 12,000

  • Cost basis = FMV at the date of receiving the gift

  • Total cost basis for 5 ETH: GBP 1,000 * 5 = GBP 5,000

  • Capital gain/loss: GBP 7,000

Payment (Salary)

If the cryptocurrency received is a payment to you as a performance of services, it may be considered as your salary. The FMV of the received coins becomes taxable employment income of that year and should be reported on the employment form - SA 102. Receiving coins from wages may be also subject to income tax withholding.

Each individual is responsible for calculating and reporting income on their tax return even if a payor has not supplied appropriate documentation. The FMV of the cryptocurrency received as salary will be the cost basis for future disposition.

Example:

  • Receive 10 ETH as salary (FMV per ETH is GBP 1,000)

  • Sell 5 ETH for 1 BTC (FMV per BTC is GBP 12,000)

Results:

  • Proceeds: GBP 12,000

  • Total cost basis for 5 ETH: GBP 1,000 * 5 = GBP 5,000

  • Capital gain/loss: GBP 7,000

  • GBP 10,000 should be reported as income from wages/salaries at the time of receipt

Transferring cryptocurrency between your own accounts

Transferring cryptocurrency between your own accounts is generally not considered a taxable event when the associated fee is in fiat. However, a portion of the transaction may be taxable if the associated fee is in cryptocurrency as there will be a difference between the FMV of the cryptocurrency disposed to settle the fee versus its adjusted cost basis. See additional information on fees below.

Swapping a cryptocurrency to another one

Token migration means whenever an old coin swaps with a new coin e.g. MCO converting to CRO. It is generally not considered a taxable event when the associated fee is in fiat. The tax logic is the same as a transfer. A portion of the transaction may be taxable if the associated fee is in cryptocurrency as there will be a difference between the FMV of the cryptocurrency disposed to settle the fee versus its adjusted cost basis. See additional information on fees below.

Cost

Users may incur expenses when the blockchain transaction is approved/failed/canceled. For example, a gas fee is charged due to a failed blockchain transaction. We call this type of transaction Cost.

It can be subject to capital gains/losses. The capital gains/losses can be calculated by subtracting the cost basis from the FMV of the coins charged. The FMV of the coins should be considered as an allowable miscellaneous expense that can offset miscellaneous income.

Example:

  • Buy 2 ETH for GBP 2000

  • 0.1 ETH is charged due to a failed blockchain transaction (FMV per ETH is GBP 1,500)

Results:

  • Cost basis per coin: GBP 2,000/2 = GBP 1,000

  • Proceeds: GBP 1,500 * 0.1 = GBP 150

  • Total cost basis for 0.1 ETH: GBP 1,000 * 0.1 = GBP 100

  • Capital gain/loss: GBP 150 - 100 = GBP 50

  • Miscellaneous expense: GBP 150 (can offset for miscellaneous income)

Margin trading

Margin trading of cryptocurrency involves capital gain/loss including the below cases:

  • Closing the position

  • Payment of interest by cryptocurrency

  • The forced sale of your collateral by exchanges

Crypto.com Tax does not support margin trading transactions at this moment. Please consult your tax advisor if you’re actively involved in margin trading.

Other Tax Rules

Fee treatment

Fees can show up in all kinds of cryptocurrency transactions and is often the most cryptic part when calculating taxes. To understand the fee treatment thoroughly, we need to consider the following two cases.

Fee in nontaxable events (e.g. buy)

Typically in a nontaxable event, the FMV of the fee will be added to the cost basis of the resulting coins. The idea is simple - the fees you pay are saved for your future benefits, as they will be considered as part of the cost basis when a disposition happens, offsetting the capital gain.

However, transfer and swap are the exceptions. The associated fees from them do not increase the cost basis and no deduction is available because the intention is to hold the cryptocurrency for investment purposes rather than disposition/acquisition of crypto.

Example 1:

  • Buy 10 ETH for GBP 10,000, with a purchase fee of GBP 100

Results:

  • Cost basis per coin: GBP (10,000 + 100) / 10 = GBP 1,010 per ETH

Example 2:

  • Buy 10 ETH for GBP 10,000 in account A

  • Transfer 5 ETH from account A to account B, with a transfer fee of GBP 50

Results:

  • Cost basis per coin in account A: GBP 10,000 / 10 = GBP 1,000 per ETH

  • Cost basis per coin in account B: GBP (1,000 * 5) / 5 = GBP 1,000 per ETH

Fee in taxable events (e.g. sell, trade, send)

In a taxable event, the FMV of the fee is considered as an expense, which is typically included in the cost basis and deducted from the proceeds.

Example:

  • Buy 10 ETH for GBP 10,000

  • Sell 5 ETH for GBP 10,000, with a selling fee of GBP 100

Results:

  • Cost basis per coin: GBP 10,000/10 = GBP 1,000 per ETH

  • Proceeds: GBP 10,000

  • Total expense: GBP 100

  • Total cost basis for 5 ETH: GBP 1,000 * 5 + GBP 100 = GBP 5,100

  • Capital gain/loss: GBP 10,000 - 5,100 = GBP 4,900

What if your fee is in cryptocurrency?

This is the most confusing part of all, but we have you covered. When your fee is in cryptocurrency, it should be valued at FMV and will separately result in a capital gain/loss as it is considered a disposition of capital property. Therefore in taxable events, your transaction can contain up to 2 capital gains/losses, and they should be separately listed on your transaction records in the capital gain/loss report.

For non-taxable events, you’ll just need to calculate the capital gain/loss from the fee. Note that in a transfer transaction, the FMV of the fee cannot be added to the resulting coins’ cost basis.

Example 1:

  • Buy 10 ETH for GBP 10,000

  • Buy 5,000 CRO for GBP 1000 with a transaction fee of 0.1 ETH

  • Assume the ETH price has gone up to GBP 2,000 on the day of buying CRO

Results:

  • Cost basis per ETH: GBP 10,000/10 = GBP 1,000 per ETH

  • Cost basis per CRO: GBP (1,000 + 200)/5,000 = GBP 0.24 per CRO

  • Capital gain/loss from the fee = GBP (2,000 - 1,000) * 0.1 = GBP 100

Example 2:

  • Buy 10 ETH for GBP 10,000 in account A

  • Transfer 5 ETH from account A to account B, with a transfer fee of 0.1 ETH

  • Assume the ETH price has gone up to GBP 2,000 on the day of transfer

Results:

  • Cost basis per coin in account A: GBP 10,000/10 = GBP 1,000 per ETH

  • Cost basis per coin in account B: GBP (1,000 * 5 ) / 5 = GBP 1,000 per ETH

  • Capital gain/loss from the fee = GBP (2,000 - 1,000) * 0.1 = GBP 100

Example 3:

  • Buy 10 ETH for GBP 10,000

  • Sell 5 ETH for GBP 10,000, with a selling fee of 0.1 ETH

  • We know the ETH price is GBP 2,000 on the day of sell

Results:

  • Cost basis per coin: GBP 10,000/10 = GBP 1,000 per ETH

  • Proceeds: GBP 10,000

  • Transaction fee: GBP 2,000 * 0.1 = GBP 200

  • Total cost basis for 5 ETH: GBP 1,000 * 5 + GBP 200 = GBP 5,200

  • Capital gain/loss from the transaction: GBP 10,000 - GBP 5,200 = GBP 4,800

  • Capital gain/loss from the fee: GBP (2,000 - 1,000) * 0.1 = GBP 100

  • Total capital gain/loss: GBP 4,800 + 100 = 4,900

Cost Basis Method

The HMRC restricts users to only use one cost basis method - Share Pooling. To identify a cost to "match" against the disposal, specific matching rules must be applied, and it is called the Sharing Pool Method. Disposals are matched to assets purchased in the following order:

  1. Assets acquired on the same day as the disposal (the same-day rule).

  2. Assets acquired in the 30 days following the day of disposal (the ‘bed and breakfasting’ rule)

  3. Assets in the "Section 104" Pool

In step 3, each acquisition goes into a pool and a weighted average is assigned to the value of the crypto asset disposed of in proportion to the entire value of the asset pool.

All disposals of the same type of asset (in this case an exchange token such as BTC) that take place on the same day are treated as one single transaction.

Losses can also be offset against capital gains: Capital losses that occur in the same tax year must be offset against a gain made in the same tax year. Any excess losses (i.e. after offsetting against gains in the same year) are carried forward and can be offset against gains in future tax years.

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