How are your crypto assets taxed?

As volatile as the crypto asset market is, HMRC does not consider the buying and selling of crypto assets to be gambling.  So while the proceeds of gambling are tax free, the same is not true for dealings with crypto assets.

HMRC applies the usual UK tax laws to crypto assets in relation to inheritance tax, capital gains tax and income tax and takes the view that  “the tax treatment of all types of tokens [i.e. crypto assets] is dependent on the nature and use of the token and not the definition of the token.”

From 1^st January 2026, providers of crypto asset services in the UK will have new responsibilities for collecting data about their users and their transactions and reporting it to HMRC.  It will therefore become easier for HMRC to contact taxpayers if they are not accurately reporting their crypto asset related activities to HMRC and paying the relevant tax.

This is a developing area of taxation and more and more guidance is becoming available.  But it is a potentially complicated area so specialist advice should always be sought before entering into any type of transaction.

Do you have to pay inheritance tax (IHT) on crypto assets?

Crypto assets are dealt with as an asset like any other asset such as company shares, and therefore normal tax rules apply. If you are not considered to be long term resident in the UK at the date of your death then you will only pay IHT on your crypto assets which are located in the UK at that time.   It is therefore important for your personal representatives to determine where your crypto assets are located which is difficult as they do not have a physical location.

The Law Commission’s view is that the tax treatment of crypto assets is mainly dependent on the residence of the asset holder rather than where the private key is held. Alternatively, the Society of Trust and Estate Practitioner’s (STEP) view is that the location of a crypto asset correlates with the location of the private key, or the person who has control of the private key (who may not be the beneficial owner).

Due to the complexity of this issue, specialist advice should be taken regarding the location of crypto assets.

The position is potentially more straightforward if you are long term resident in the UK at the date of your death as then all your assets worldwide are subject to IHT.  However, the crypto assets may also be subject to tax in the country in which they are located which is why specialist advice is so important.

IHT can also be relevant during your lifetime and specialist advice should be sought before carrying out any estate planning involving crypto assets.

Do you have to pay capital gains tax (CGT) on crypto assets?

According to HMRC, “in the vast majority of cases individuals hold crypto assets as a personal investment, usually for capital appreciation or to make particular purchases” which means that individuals are generally subject to CGT at a rate of up to 24% on gains made on disposal of crypto assets.

As usual, a disposal triggers the need to consider whether a gain or loss has arisen. The gain or loss is equal to the disposal proceeds less the value of the crypto asset when you acquired it.

A disposal not only includes selling crypto assets but also exchanging one type of crypto asset for another, using tokens to pay for goods or services and making gifts of crypto assets to others.  Many holders of cryptocurrencies like Bitcoin or Ethereum don’t realise that if they  use cryptocurrency to buy something, or pay a bill using it, they potentially have a tax liability.

When selling a crypto asset, the proceeds will be the sterling value of the cash received. When exchanging the crypto asset, the proceeds will be the sterling value of the new asset received.

When gifting crypto assets, the proceeds will be the value of the asset given away and you will be treated as if you received that amount in pounds sterling even if you did not actually receive any money.

The value of the gain will be reduced by allowable expenses and relief will be given for any income tax paid when the crypto asset were received (see the section below on income tax).

Do you have to pay income tax on crypto assets?

You will be liable for income tax if you receive crypto assets from your employer as these are considered a form of non-cash payment.

If you are generating income from crypto assets through mining, staking, transaction confirmation or airdrops you will also be liable for income tax on the assets you receive at the time of receipt.

What is mining in regards to crypto assets?

Coinbase (a US leading cryptocurrency exchange and financial services company) explains mining as follows: “Mining is the process that Bitcoin and several other cryptocurrencies use to generate new coins and verify new transactions. It involves vast, decentralised networks of computers around the world that verify and secure blockchains – the virtual ledgers that document cryptocurrency transactions. In return for contributing their processing power, computers on the network are rewarded with new coins. It’s a virtuous circle: the miners maintain and secure the blockchain, the blockchain awards the coins, the coins provide an incentive for the miners to maintain the blockchain.”

If the mining activity is not considered to be a trade, the pound sterling value (at the time of receipt) of any assets awarded will be taxable as income and deductions may be made for relevant expenses incurred.

If you keep the assets you receive through mining you may have to pay capital gains tax when you later dispose of them.

What is staking and transaction confirmation?

Staking and transaction confirmation are core aspects of how crypto assets operate.

Staking involves locking your crypto asset holdings to a blockchain network to help the blockchain operate smoothly.  Transaction confirmation involves network participants validating transaction details and verifying their authenticity.  You will receive rewards for both staking and transaction confirmation.

If the staking and mining activity is not considered to be a trade, the pound sterling value (at the time of receipt) of any assets awarded will be taxable as income and deductions may be made for relevant expenses incurred.

If you keep the assets you receive through staking and transaction confirmation you may have to pay capital gains tax when you later dispose of them.

What is crypto airdrop?

This is typically where blockchain-based startups distribute free tokens or coins to individuals with the aim to spread awareness and promote their cryptocurrency project to encourage individuals to join their network when it becomes available.

Whether crypto airdrops are subject to income tax depends on whether the airdropped tokens are given in return for a service e.g. following social media, holding other specific tokens or with other conditions attached.  If they are not given in return for (or in expectation of) a service then they are not subject to income tax but if something is given in return then the tokens are considered taxable as income at the time of receipt.

If you keep the assets you receive you may have to pay capital gains tax when you later dispose of them even if they were not subject to income tax when they were received.

What happens if you are trading?

It is very unlikely that you will buy and sell crypto assets with sufficient frequency, organisation and/or sophistication to be considered trading.

If you are considered to be trading then income tax will take priority over CGT and you will pay income tax on your profits.  As stated above, if you are not considered to be trading then the buying and selling of crypto assets will treated as an investment and CGT will apply.

In all cases, if you hold crypto assets then you should obtain independent specialist advice on your specific circumstances.