How Crypto is Taxed in the UK

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Crypto might feel like the future, but when it comes to tax, HMRC is already playing catch-up, and winning.

With more individuals trading, mining, and earning in digital currencies, understanding the UK tax rules has never been more important.

Whether you’re holding tokens or flipping altcoins, knowing the tax implications can save you a lot more than just stress.

Crypto Tax

(Read Time: Approx. 4 minutes)

Topics Discussed:

  • The UK tax implications for crypto investors, including how different activities are taxed.
  • Common tricks used to hide crypto and how HMRC is catching up with offenders.

Understanding Crypto in the Eyes of HMRC

Crypto might be the wild west of modern finance, but HMRC has its boots on and is riding hard.

As cryptocurrencies have exploded in popularity, so has HMRC’s interest in making sure every transaction gets its due tax treatment.

Whether you’re a casual investor or a dedicated miner, failing to grasp the tax rules can have serious consequences.

Let’s break down the most pressing questions UK taxpayers have when it comes to crypto.

What Does HMRC Consider as Crypto?

Before diving into the tax treatment, it’s important to understand how HMRC defines crypto assets.

Broadly, there are three key categories:

  • Exchange Tokens: These are the most familiar, including the likes of Bitcoin and Ethereum, used primarily as a means of exchange or investment.
  • Utility Tokens: These provide access to specific goods or services, often within a platform’s ecosystem.
  • Security Tokens: These grant ownership in an asset or business, potentially yielding profit.

If you’re dealing in any of these, HMRC is watching.

How Crypto is Taxed in the UK

For Individuals

If you’re holding crypto purely as an investment, there’s no tax liability while holding.

However, disposing of crypto, whether by selling, exchanging, gifting (except to your spouse), or spending, counts as a taxable event under Capital Gains Tax (CGT) rules.

  • The first £3,000 of gains is tax-free (current allowance).
  • Basic rate taxpayers pay 10% CGT.
  • Higher rate taxpayers pay 20%.

If you’re mining, staking, receiving crypto via airdrops, or being paid in crypto, these activities are treated as income.

You’ll be taxed based on your income tax rate, which ranges from 20% to 45%.

For Companies

Companies that hold or trade crypto are subject to Corporation Tax, currently at 25%.

This includes payment received in crypto, exchanges, or using crypto for services.

If you’re thinking of putting crypto into a trust to sidestep personal tax, think again.

Trusts pay tax at a higher rate (45%) which can often nullify the benefits.

How People Try to Hide Crypto – And How HMRC Finds Them

From simply not declaring crypto gains to using mixers like Tornado Cash or moving assets to exchanges like Binance and FTX, there’s no shortage of tricks.

Some create new wallets or use stablecoins to “cash out” indirectly.

But HMRC is wise to these schemes. Here’s how they’re catching people:

  • Information Requests from Exchanges: HMRC now has data-sharing agreements with major exchanges like Coinbase and Binance.
  • AI and Digital Forensics: Using artificial intelligence, they can track wallet movements, IP addresses, and even connect bank accounts to crypto activity.
  • Whistleblowers: Crypto success stories are often hard to keep quiet. Loose talk among colleagues or friends can lead straight to HMRC.

What Happens If You Get Caught?

The consequences for getting caught hiding crypto gains are severe:

  • 100% financial penalties (doubling your tax liability).
  • Interest charges on unpaid tax.
  • Criminal prosecution in serious cases, particularly where the evasion exceeds £25,000.
  • Public naming and shaming, which can destroy reputations.
  • Freezing of bank accounts, especially when offshore accounts are involved.

HMRC isn’t just focused on minor oversights anymore.

Crypto is used by criminal enterprises, and HMRC is part of a broader international effort to track digital money trails.

What’s on HMRC’s Radar for 2025–26?

According to reliable internal sources, several new enforcement and monitoring mechanisms are set to roll out:

  • OECD Crypto Reporting Framework: Global wallet data sharing will make it nearly impossible to hide assets offshore.
  • Real-time transaction data sharing: This will alert HMRC to transactions as they happen.
  • Blockchain analysis: Already in progress, this initiative aims to trace unreported transactions back to individuals.
  • Targeted campaigns on influencers: A big crackdown on those promoting crypto gains without disclosing tax liabilities is expected.

Summary

Crypto is not a loophole, and it’s certainly not off HMRC’s radar.

With fortunes being made by young, savvy investors, there’s a huge incentive to ensure your tax affairs are in order. The tools at HMRC’s disposal are only becoming more sophisticated.

If you’ve invested in crypto or are thinking about it, don’t leave your tax compliance to chance.

Get in touch with us at Tax Expert to find out how you can stay compliant while maximising your crypto profits.

Fill out our form here for any questions, email us at info@taxexpert.co.uk, or message us on our WhatsApp for out of office hours.

Kind regards,

Ilyas Patel