Cryptocurrency UK tax implications

This is an area of increasing interest to HMRC, whose stance on the tax implications is well laid out in their extensive Crypto Assets Manual. The Capital Gains Tax pages of Tax Returns have also had their own dedicated cryptoassets section since 2024/25, making it harder for investors to overlook their reporting requirements. HMRC also have increasing powers to obtain details of UK resident investors from crypto exchanges, and as a result, sends so-called nudge letters to individuals who they believe have been involved in crypto and not reported their activity. The new international Crypto-Asset Reporting Framework (CARF), which began on 1 January 2026, provides HMRC with even more powers to collect data on international exchanges. Individuals should not therefore wait for HMRC to catch up with them, they must ensure they are tax compliant now.

There are many different types of crypto assets, the main types are as follows:

• Exchange tokens – by far the most common category and what most people would consider ‘cryptocurrency’. The two most common examples are Bitcoin and Ethereum. They also include Stablecoins, which (in theory) are pegged to another asset class.
• Utility tokens – tokens that provide the holder with access to goods or services.
• Security tokens – as the name suggests, these act as a security in a business, similar to a shareholding.

Capital Gains Tax 

Crypto assets are chargeable to Capital Gains Tax (CGT) in the same way as any other investment asset. Individuals are liable to pay CGT on any gains when crypto assets are:

• sold for cash
• exchanged or ‘swapped’ for a different type of crypto asset
• used to pay for goods or services
• given away to another person (other than a spouse).

Crypto assets are effectively treated in the same way as shares in order to calculate the gain or loss. This means that acquisition values are kept in a ‘pool’, with special rules applying in respect of same-day and 30-day disposals.

Most exchanges provide investors with a transaction report in an Excel CSV format through their online portal, providing a historical record of all transactions. Special online CGT software can assist with calculating the gains and losses arising each tax year based on the rules mentioned above, using those reports or connecting directly to exchanges.

Capital losses

Disposals of crypto assets for less than their original cost result in a capital loss. This is particularly useful at times when the volatility of the crypto market, leads to large drops in crypto values. These losses are invaluable as they can be set against any capital gains (crypto or otherwise), either in the year of the loss or in future years. However, they need to be claimed in order to be used.

Negligible value claims

If a crypto asset becomes worthless with no chance of recovering value then, provided the individual still owns it, a ‘negligible value’ claim can be made to HMRC in order to generate a loss. Evidence, however, needs to be provided to prove that the crypto asset is now worthless with no realistic chance of it recovering in value.

In HMRC’s eyes, this is different to cases where crypto assets have been stolen or private keys misplaced. As the asset (and private key) still exist, and when the individual has a right to recover them, HMRC would not consider this to be an automatic disposal.

If it can be proven that there is no realistic possibility of recovering ownership of the crypto asset, HMRC may, in some circumstances, accept a negligible value claim and losses crystallised.

If the key is subsequently recovered by the owner and disposed of, the base cost will likely be zero, and the capital gain will equate to the total amount received.

Those investors unlucky enough to have been affected by various exchanges going bankrupt (most notably FTX a few years back) may have found their assets inaccessible and tied up in ongoing bankruptcy proceedings. Unfortunately, it is unlikely that negligible value claims will be successful whilst proceedings are ongoing: there is, after all, a small potential you may recover some of your funds. We advise individuals in such circumstances to sit tight and wait for proceedings to finish. Afterwards, a claim may be more successful in respect of funds that are not returned.

Income tax

In certain circumstances, income tax may be payable.

Similar to shares, where trades are conducted with a very high frequency and a sophisticated level of organisation, HMRC may consider that the individual concerned is trading in crypto assets. In such cases, profits are subject to the income tax and National Insurance regimes, as opposed to CGT.

HMRC have historically been generally reluctant to allow such treatment in respect of crypto assets unless there are exceptional circumstances, no doubt put off by the likelihood of losses being claimed against other income. However, where there is substantial activity and large profits made, HMRC have given closer scrutiny over whether the activity is in fact a trade. 

To determine whether a trade is being conducted, the same ‘badges of trade’ need to be considered as they do for any self-employment activity.

Certain other crypto activities do generate income, where they do not involve the straight buying, selling and exchanging of crypto assets.  These include coin mining, staking, airdrops and transaction confirmations.

The location of crypto assets

Where HMRC judges crypto assets to be located is important in certain situations. In the past, this has revolved around non-domiciled individuals claiming the remittance of taxation for income and capital gains tax purposes, or subject to Inheritance Tax (IHT) on their UK assets only. Since 6 April 2025 with an overhaul of tax treatment for non-domiciled individuals changing to focus on long-term UK residents, this continues to be an issue for the first four tax years of UK residence or those who are not deemed long-term UK residents for IHT purposes. 

HMRC’s current position is that the location of crypto assets should follow the residence of the individual. This would make arguing any crypto asset held by a UK resident to be non-UK situs difficult. Many in the tax profession have disputed this view, but with the lack of any First Tier Tribunal cases supporting the position one way or the other, HMRC’s view does appear to be increasingly established as the norm. This remains an interesting issue though, and those affected should seek professional advice.

Further information

Crypto is an area of increasing interest to HMRC, and care needs to be taken to ensure that you report your activity correctly, and certainly don’t fail to report it at all. It is always best to check your position before HMRC reaches out to you.

Speak to your usual Crowe contact to find out more.