Crypto currencies - Detailed Guide

Overview

There has been an enormous increase in interest in cryptocurrencies, with significant opportunities, and risks, for investors. However, like any form of gain, the tax consequences of trading must be considered. In this guide, we deal with the potential implications of dealing in cryptocurrencies.

How to Treat Gains and Losses

Prior to December 2018, there was a possibility that crypto gains could be categorised as ‘gambling’ gains or losses (and therefore tax-free). However, changes in HMRC guidance mean this is no longer the case. Cryptocurrencies have become mainstream, with proper broker reports available, and are therefore no longer considered gambling.

There are now two ways to treat gains or losses, depending on trading status:

1. Capital Gains Treatment (most investors)

   • For the majority of individuals investing in crypto on an ad-hoc basis outside of work or business, gains and losses are treated as capital.

     This means:

     • Gains above the annual exempt amount are taxable.
     • The annual exempt amount is £3,000 in both 2024–25 and 2025–26.
     • CGT rates from April 2025 are 18% (basic rate) and 24% (higher/additional rate).
   • You must report on your tax return if either:
     • Realised gains exceed the annual exempt amount; or
     • The total funds realised (crypto plus other assets) are more than four times the allowance (£12,000 in 2025–26).
2. Income Tax Treatment (professional traders) ⚠️
   • If you meet the criteria of being a professional trader, then gains and losses are treated as income, taxed at higher income tax rates (up to 45%).
   • This is rare and generally applies to trading firms and hedge funds, but can apply to individual traders too (see below).

Criteria for Trading Status

For HMRC to consider your crypto activity as trading, the following criteria are often relevant:

• The activity is undertaken on a full-time basis.
• There is a strategy (however unsophisticated) that is consistently applied.
• There is a business plan (ideally written).
• The taxpayer undertakes basic bookkeeping.

📊 Calculating Gains and Losses

When calculating crypto gains:

• All transactions must be recorded in GBP.
• Each type of cryptocurrency is treated as a separate asset and must be pooled.
• HMRC applies share pooling rules, including “same-day” and “30-day” rules.
• Many platforms do not provide consolidated broker reports—so it is essential to keep detailed records.

🔗 HMRC guidance: Work out if you need to pay tax when you sell cryptoassets

Where Are Cryptoassets Taxed?

Given their relative novelty, there is limited case law on where a bitcoin (or other cryptoasset) is “situated” for tax purposes. HMRC’s position is that crypto is located where the individual who owns it is resident.

• For UK tax residents, crypto is treated as situated in the UK.
• Some argue crypto is ‘code’ and should be situated where it was mined - but HMRC is unlikely to accept this view. Any taxpayer pursuing it would likely face dispute.

🔗 HMRC guidance: Cryptoassets manual

Conclusion

For most investors, the tax treatment of cryptoassets is relatively straightforward:

• Gains and losses are treated under capital gains rules.
• The main complexities arise when using multiple platforms or trading in multiple types of crypto.
• Keeping detailed records is vital.

If you have questions or need clarification reach out to us for further support.