How Much Crypto is Tax-Free in the UK
The topic that 99% of UK crypto investors dread talking about — is crypto tax. But make no mistake, if you don't want HMRC making your life hell, then it's very much in your interest to keep up-to-date with the latest UK tax guidance in order to ensure you are meeting your tax obligations.
But crypto tax doesn't always have to be a gloomy subject, especially when there are legal avenues where you can potentially reduce your crypto tax, and this includes tax allowances and exemptions.
This article will therefore act as a tax guide for UK residents who want to know how much crypto is tax-free.
In this article, we’ll take a look at:
- UK Crypto Capital Gains Tax
- UK Crypto Income Tax
- Strategies to Maximise Your Tax-Free Crypto
Let's dive right in!
How is Crypto Taxed in the UK
In order to determine how much crypto is tax-free in the UK, the first port of call is to determine current capital gains and income tax obligations.
UK Crypto Capital Gains Tax
What is capital gains tax?
Put simply, capital gains tax (CGT) is a tax on the profit you make when you sell or dispose of an asset that has increased in value. The tax is only on the gain you make, not the total amount you receive. For crypto assets, CGT applies when you sell, trade, or spend your cryptocurrency, and it is treated similarly to the disposal of other types of property, like stocks or shares.
UK capital gains tax rates (2024-2025)
The rate of capital gains tax you pay depends on your income tax band and the type of asset.
For the 2024-2025 tax year, the rates you need to pay are as follows:
Basic-rate taxpayers:
- 10% on gains that fall within your basic rate band
- 20% on gains that exceed your basic rate band
Higher or additional-rate taxpayers:
- 20% on gains that fall within your higher-rate band
- 28% on gains that exceed your higher-rate band
When does CGT apply to crypto transactions?
CGT applies to various types of crypto transactions, and you may need to pay capital gains tax if you meet one of the following activities:
- Selling crypto for fiat currency: When you exchange your cryptocurrency for GBP or any other fiat currency, the profit you make is subject to CGT.
- Trading crypto for another crypto: Swapping one cryptocurrency for another is considered a disposal, and any profit made is subject to CGT.
- Spending crypto: Using your cryptocurrency to purchase goods or services is also seen as a disposal, triggering CGT on any profit made.
- Gifting crypto (except to a spouse or civil partner): Giving your cryptocurrency as a gift to anyone other than your spouse or civil partner is considered a disposal and may be subject to CGT.
How to calculate your capital gains on crypto
In order to calculate your capital gains, you'll first need to know the cost basis of your crypto asset. This is basically the amount you paid to purchase your crypto assets (including any transaction fees). When you sell any of your assets, you take away the cost basis from the proceeds of whatever you sold, traded or used.
For example, if you bought 1 BTC for £10,000 and later sold it for £15,000, your capital gain would be £5,000 (if you were on the basic-rate band). It’s important to note that you must calculate this for each disposal you make during the tax year.
Current CGT allowances for the tax year
Each tax year, you are allowed to make a certain amount of capital gains before you have to pay any CGT. This is known as the annual exempt amount. For the 2024/2025 tax year, the annual exempt amount for individuals is £3,000. This means that if your total gains for the year are below this threshold, you won’t have to pay any CGT.
UK Crypto Income Tax
What is income tax?
Income Tax is a tax you pay on your income, which includes wages, salaries, dividends, and yes, certain types of crypto earnings. In the context of cryptocurrency, income tax applies when you receive crypto as a form of payment, mining rewards, staking rewards, or any other activity that yields a regular return. The amount of tax you owe depends on your total income and your tax bracket.
UK income gains tax rates tax band (2024-2025)
Below are the income tax rates for UK residents in 2024-2025:
Personal allowance:
- Up to £12,570 - 0%
Basic rate:
- £12,571 to £50,270 - 20%
Higher rate:
- £50,271 to £125,140 - 40%
Additional rate:
- Over £125,140 - 45%
This applies to any income you earn over the course of the tax year; including income obtained from crypto.
When does income tax apply to crypto transactions?
Income tax applies to various types of crypto transactions, including:
- Receiving crypto as payment: If you are paid in cryptocurrency for goods or services, the value of the crypto at the time of receipt is subject to income tax.
- Mining rewards: Cryptocurrency earned through mining is considered taxable income at the fair market value on the day it was received.
- Staking rewards: Earnings from staking crypto are also treated as income and taxed based on their value at the time you receive them.
- Airdrops: If you receive airdrops in exchange for providing a service or as a reward, these are generally subject to income tax.
Calculating your crypto income for tax purposes
To work out your crypto income, you'll need to determine the "fair market value" of the crypto on the day you receive it. This naturally should be converted to pounds, as this will be included in your total taxable income for the year.
As a hypothetical example, if you mined 0.1 BTC when its market value was round £30,000 per BTC, your taxable income from mining would be £3,000.
Income tax allowances
The personal allowance for income tax:
Every individual is entitled to a personal allowance, which is the amount of income you can earn each year without paying any income tax. For the 2024-2025 tax year, this amount is set at £12,570. Any income below this threshold, including income from crypto, is tax-free.
Trading allowance for small amounts of crypto income:
According to HM Revenue & Customs, the trading allowance provides up to £1,000 of tax-free income from trading or miscellaneous income. If your total trading and miscellaneous income, including from crypto (including activities like mining, staking or airdrops), is below £1,000, you don’t need to report it or pay tax on it. If it exceeds £1,000, you can still deduct £1,000 from your taxable income.
By understanding and using these allowances, you can effectively reduce your taxable income and possibly keep some of your crypto earnings tax-free.
Strategies to Maximise Your Tax-Free Crypto
There are several strategies that can help you maximise your tax-free crypto in the UK. By making use of available allowances, offsetting gains with losses, and taking advantage of tax-free gifting, you can potentially reduce your tax obligations significantly when doing your self assessment tax return.
Using allowances efficiently
This may be stating the obvious, but don't forget to make use of your allowances in an efficient manner. As mentioned previously, the annual exempt amount for capital gains is £3,000 for the 2024/2025 tax year, whereas the personal allowance for income tax is £12,570. Trading allowance also provides up to £1,000 of tax-free income.
This, in theory, means there could be ways for you to leverage all three when partaking in crypto. But be aware that capital gains and income tax are always taxed separately.
Offsetting gains with losses
Another effective strategy is to offset your capital gains with any capital losses you may have incurred. If you experienced a loss on some of your crypto investments, you can use these losses to reduce the amount of gain that is subject to tax. For example, if you made a capital gain of £5,000 but also incurred a loss of £2,000, you can offset the loss against the gain, reducing your taxable gain to £3,000 – which, conveniently, is within the tax-free allowance for the year.
It’s important to keep detailed records of all your transactions, including losses, to ensure you can substantiate your claims when filing your tax return. Losses can be carried forward to offset future gains, so even if you don’t need them this year, they could be valuable in subsequent tax years.
Gifting crypto to a spouse or civil partner
If you want to take advantage of two people's individual tax allowances, then gifting your crypto to a spouse or civil partner is a great way to do so. This is because transfers between spouses and civil partners are not subject to capital gains tax.
For example, if you made some gains during this bull run, and it exceeded the annual exempt amount, then you can give your crypto to your spouse as a gift. They can then sell this crypto and use their own capital gains tax allowance; potentially resulting in no tax on the transaction. Additionally, this approach can be very useful if your spouse or civil partner are in a lower income tax bracket, as their tax rate on gains above the allowance could be lower than yours.
Conclusion
As was discussed, understanding how crypto is taxed in the UK, and employing strategies to maximise your tax-free crypto can significantly reduce your tax liability to HMRC. By efficiently using your allowances, offsetting gains with losses, and leveraging tax-free gifting to spouses or civil partners, you can legally minimise the amount of tax you owe on your crypto investments.
But given how UK crypto tax rules are still evolving, it is advisable to stay informed on the latest updates, as staying compliant with HMRC will save UK crypto traders and investors a lot of unnecessary stress. So regularly review the latest tax rules on gov.uk, and consult with a tax accountant to ensure you're making the most out of your allowances and exemptions. By doing so, you can have more peace of mind when navigating the exciting world of crypto.
Best of luck with your crypto taxes!
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