The Ultimate Guide on Crypto Tax in the UK, 2024

UK citizens need to pay crypto tax in the UK for crypto dealings and crypto trades. It is a bit complicated to understand the concept of UK tax.

Similar to other jurisdictions, Her Majesty’s Revenue Service HMRC did not create new laws to tax cryptocurrencies or crypto assets.

But, in 2018, it issued guidance on how to tax crypto and the guidelines state that cryptocurrencies are not considered currency or money. Still, they are regarded as crypto assets or property.  

Crypto Tax UK comes under the guidelines framed by HMRC, and it has been updated several times based on the need. In 2024, the tax department highlighted how to tax decentralized finance staking and lending.

It assists in determining the tax liabilities associated with such events as mining, trading, and related complicated decentralized or DeFi protocols. 

Is crypto taxable in the UK?

The individuals involved in buying and disposing of cryptocurrency as their investment need to pay capital gain tax based on the profits made by the individuals. 

HMRC refers to cryptocurrency as units or tokens, and the disposal of such tokens include

• Selling or disposing of tokens for money
• Exchange of the tokens for other types of token
• Pay for goods and services using the tokens
• Giving the permit to the other person

All these are the factors that can give profit to the token owners, and hence it is taxable. 

Crypto Tax UK for the capital gain tax is acceptable for disposing of the cryptocurrencies, and the rate of collection of tax includes

• Twenty per cent of the tax for additional and higher-rate taxpayers
• Ten per cent of the individual who comes under the basic rate taxpayers

It is the standard tax rate, but there are possibilities for variation of taxes based on the overall taxable income, the rate of gain of tokens, and the individual’s deducted allowances. 

All these facts make it clear that crypto trading is taxable, and the individuals who deal with such assets are supposed to pay the tax framed by the tax department of the United Kingdom. 

How is crypto taxed in the UK?

HMRC has published guidance for individuals who hold cryptocurrencies or crypto assets.

It clearly explains to the asset holders what taxes they might need to pay and the vital records the individuals need to maintain. 

HMRC also publishes information for businesses and companies about Crypto Tax UK for every crypto asset transaction.

The tax policy evolves as the sector gets developed, and it also gives related guidance to individuals and companies to check the need for tax payment when they are involved in 

• Selling crypto assets
• Buying crypto assets

The detailed information clears all the doubts about taxpayers for the individuals and the business concerns involved in crypto trading.

HMRC updates the tax for crypto assets or cryptocurrencies, and the public can visit the official website to gain further information regarding tax repayment.

Crypto Income tax: 

It is crucial to know that there are no taxes applied to any currencies in the UK. Either it could be a centralized currency, or it could be a decentralized currency.

However, a tax is collected, and it is applicable for cryptocurrency under specific circumstances, individuals need to understand the events for a better understanding of tax payment.

Individuals or business people need to pay the tax when they gain any profit by investing in crypto investments.

The tax is based on the crypto portfolio and the rate of gain that earns the individual or the concern. Paying taxes for such profitable transactions is compulsory in the UK.  

How much tax will you pay on crypto income?

The following table clearly explains the tax payment for income, and it gives a clear idea to the readers for a better understanding.

The above table clearly states the percentage of taxes collected by the tax department of The United Kingdom.

Crypto Capital Gains Tax UK: 

Crypto Tax UK regulations are still under process and yet to be framed. It is clear that HMRC still does not consider crypto assets as centralized money, and it considers them as 

• Exchange tokens
• Utility tokens and 
• Security tokens

However, taxing digital currency depends on how these tokens are used by individuals and companies and based on the income generated by trading virtual currencies. 

Any individual who holds Bitcoin or any other cryptocurrency as a personal investment, the individual is liable to pay Capital Gain Tax. The tax is based on the profit made by the individual, and that remains reliable. 

Crypto Capital Gains Tax Rates UK:

HMRC advice states that specific factors lie behind determining the tax liabilities based on activities like mining, trading, and DeFi protocols. For individuals, Crypto Tax UK guidance for crypto is split among capital gains and income. 

Whenever the individual is involved in selling crypto, then HMRC is likely to charge capital gain taxes. The following are the circumstances in which the individual needs to pay capital gain tax to the department, and includes

• Trading cryptocurrencies that include buying and selling
• When individuals get paid out of crypto
• While mining and validating
• Airdrops
• Crypto is inherited by the individual
• Defi protocols

The following table explains the rate percentage of tax collected in The United Kingdom, and it is given here for better reference.

What are Crypto capital losses?

It is interesting to know that cryptocurrency losses get used by individuals to offset capital gains. A capital gain is considered when the individual sells, transfers, or disposes of the crypto for profit. 

Long-term capital losses for the crypto assets held for more than one year by the individuals are subjected to use to offset long-term capital gains.

At the same time, short-term capital losses for the assets held by the individuals for one year or less are used to offset short-term capital gains. 

When Tax-free on crypto, UK:

The UK residents are given an annual capital gains tax allowance of £ 12,300 for the tax year 2021-2024 and the tax year 2022-2024.

It is better understood that unless the individuals make a profit for more than £ 12,300 in capital gains for the mentioned respective years, no tax is needed to be paid by the individuals.

Do you have to pay Tax when buying crypto in the UK?

So far, cryptocurrency is not considered a centralized currency in the UK, but it is regarded as a crypto asset. Like stock trading, the profit made by the investment of crypto is liable to tax payment. 

Crypto Tax UK is not applicable for individuals when they buy crypto in The United Kingdom. The tax is collected only for the profit made by crypto investment.

Do you have to pay Tax when selling cryptocurrency in the UK?

Crypto Tax UK is not applicable for individuals selling cryptocurrency, similar to buying cryptocurrency.

However, the profit gained by selling or disposing of cryptocurrency is liable for tax payment, and the tax rate is based on the profit percentage received by the individuals.

Do you have to pay Tax when transferring crypto?

There is no Crypto Tax UK applicable for owning or transferring digital assets in The United Kingdom. The tax is suitable depending on the specific transactions made by the individuals using crypto.

If there comes any income with the invested crypto, then an income tax needs to be paid by the individuals owning the digital asset.

Crypto gifts and donations tax:

Here are some factors available to be considered by individuals while giving or receiving cryptocurrency as gifts. Cryptocurrency is otherwise known as a crypto asset similar to other properties and other shared assets of gold and stock. 

The individuals need to pay tax in 2024 for any crypto given as gifts that exceed £ 15 000. The crypto offered as a gift below £ 15 000 is not liable for tax. 

Crypto mining tax UK:

Suppose the individual earns cryptocurrency by mining it or receiving it as a promotion or payment for goods or services.

In that case, it is considered the regular taxable income for the individual. The individuals owe the tax on the entire fair market value at the ordinary income tax rate.

Crypto day trading tax UK:

Yes! Individuals who are involved in buying and selling cryptocurrencies are subjected to paying taxes. HMRC considered is a digital asset, and hence, the tax applies similarly to other investments.

When do you need to report your crypto taxes to HMRC?

HMRC considers crypto as digital or virtual assets, and hence, it is liable for capital gain tax in The United Kingdom. Only the profit gained by the crypto assets is subjected to capital gains tax, and the taxable factors include

• Profits gained from swapping crypto for crypto
• Profits gained from selling crypto for traditional currency
• Making use of cryptocurrency for purchasing services and goods
• Received gains made out of gifting crypto, and the condition excluded for gifting to spouse

Under all these circumstances, it becomes crucial for the individual to report the crypto tax to HMRC.

How to pay Tax on cryptocurrency in the UK?

The gain is usually calculated as the difference between the rate paid for an asset and the rate an individual sold it for.

The individuals pay the capital gains tax for the gains above the tax-free allowance level. There are specific allowable costs available that can be deducted from the gain rate, and it include

• A transaction fee is paid once the transaction is added to a blockchain
• Advertising costs for a buyer and seller 
• Drawing up a contract for the transaction by the individual
• The valuation that helps the individual to work out the gain for the carried transaction

The individuals cannot deduct the costs when the individuals have done the same for-profit or income tax or even for the cost of mining activities. 

How to avoid paying Tax on cryptocurrency UK?

Here are some factors mentioned to avoid paying tax for crypto in The United Kingdom. The factors include

• Make use of the annual allowance
• Double the annual allowance
• Try to include the losses, if any, in the calculation
• Knowingly, sell crypto for a loss
• Ally, the bed and spouse strategy 
• Try to sell the crypto on either side of the tax year
• Donate the crypto to charity
• Plan a trip and move abroad for five years

All these factors help individuals avoid paying capital gain tax for crypto dealings. 

Crypto regulations in The United Kingdom:

Crypto is considered a utility token, and it grants access to its perspective products or services inside the United Kingdom. Crypto is regulated under e-money regulations.

Crypto firms that are dealing with digital assets for cross-border payments. It is a fact that the tokens cannot be controlled by themselves. 

It is a fact that the UK is an outlier in Europe that deals with the digital asset space. It does not have any regulatory framework for cryptocurrencies, and as of October 2020, the Financial Conduct Authority banned the sale of crypto derivatives.

The ban also extends for exchange-traded notes to retail investors, which has become a crucial aspect of the regulatory process.

Conclusion:

Cryptocurrency is a virtual asset, and it gains more profit for the owners while they are involved in trading such currency. Like gold and stock investment, crypto investment also earns profit for the owners.

However, specific conditions make the cryptocurrency fall under tax payable liabilities, and it is crucial to pay such Tax for the concerned department.

HMRC clearly states that the individuals who profit from the investment made using cryptocurrency are liable to pay capital gain tax.

It specifies the percentage of tax to be paid by the investors—paying tax for the profit gained by crypto trading is crucial inside The United Kingdom.