How HMRC treats cryptocurrency
In brief: HMRC does not treat cryptocurrency as currency. It treats crypto assets as property — meaning disposals trigger Capital Gains Tax, and income from staking, mining, or airdrops is subject to income tax. Every transaction must be recorded. The tax treatment is similar to shares in a GIA, but record-keeping is considerably more complex.
HMRC's position, set out in its Cryptoassets Manual (CRYPTO10000), is that most individual holdings of cryptocurrency — Bitcoin, Ethereum, and other tokens — are capital assets subject to Capital Gains Tax on disposal.
Cryptocurrency is not treated as foreign currency, gambling winnings, or a speculative contract. It is taxed in the same framework as stocks and shares, with some additional complexities arising from the nature of digital assets.
What counts as a disposal
A disposal is any event where you cease to hold a crypto asset in exchange for something else. Disposals include:
- Selling cryptocurrency for sterling or another fiat currency
- Swapping one cryptocurrency for another (e.g., Bitcoin for Ethereum) — even though no sterling changes hands, this is a disposal of the first asset and an acquisition of the second
- Spending cryptocurrency to buy goods or services
- Gifting cryptocurrency (except to a spouse or civil partner)
- Donating cryptocurrency (though charitable donations may qualify for reliefs)
Simply moving cryptocurrency between your own wallets does not constitute a disposal. Neither does buying cryptocurrency with sterling.
Capital Gains Tax on disposals
The gain on a crypto disposal is:
Disposal proceeds minus allowable cost
The £3,000 annual CGT exemption (Annual Exempt Amount) applies to crypto gains in the same way as shares. Gains above the exemption are taxed at:
| Tax band | CGT rate on crypto |
|---|---|
| Basic rate | 18% |
| Higher rate / Additional rate | 24% |
Losses on crypto disposals can be offset against gains from other assets (shares, property, other crypto) in the same tax year, or carried forward to future years.
Section 104 pooling for crypto
Like shares, crypto assets are tracked using a pooling system. Each cryptocurrency type (Bitcoin, Ethereum, etc.) has its own pool. The pool cost is the total amount paid for all units of that cryptocurrency, averaged across all purchases.
There are two same-day/30-day matching rules:
- Same-day rule: coins bought and sold on the same day are matched against each other first
- 30-day bed and breakfast rule: coins sold and repurchased within 30 days are matched against the repurchase price, not the pool — this prevents artificial loss crystallisation
The 30-day rule is an important practical constraint. If you sell Bitcoin at a loss and want to rebuy, HMRC will match the repurchase against the sale, eliminating the loss for tax purposes. You would need to wait 30 days before rebuying to preserve the loss.
Crypto in an ISA or SIPP
As of 2025/26, there is no ISA or SIPP that legally holds cryptocurrency directly. Crypto assets are not currently a qualifying investment for either wrapper. Some exchange-traded products (ETPs) that track crypto prices are available within ISAs, but direct crypto holdings cannot be sheltered from tax.
This means crypto held as a direct investment will always sit in a GIA-equivalent structure and be subject to CGT and income tax rules.
Income tax on crypto receipts
Some crypto activities generate income rather than capital gains. Income tax applies to:
Staking — Receiving rewards for validating transactions in a proof-of-stake network. HMRC treats staking rewards as miscellaneous income, taxable at your marginal income tax rate when received.
Mining — Receiving newly minted cryptocurrency as a reward for validating transactions in a proof-of-work network (e.g., Bitcoin mining). If done as an individual hobbyist, this is taxable as miscellaneous income. If done as a trade, the rules differ.
Airdrops — Free distributions of new tokens. If received in return for any service or promotion, the tokens are taxable income. If received passively (no activity required), they may escape income tax at receipt but will be subject to CGT when disposed of.
DeFi lending / yield farming — Returns from lending crypto or providing liquidity in decentralised finance protocols. HMRC's guidance here is evolving. In most cases, the receipt of additional tokens as yield is treated as miscellaneous income in the period received.
Once you have paid income tax on received crypto, the cost basis for CGT purposes is set at the market value on the date of receipt.
Record-keeping requirements
HMRC requires you to keep records of every crypto transaction to calculate gains and losses correctly. For each transaction, you should record:
- Type of transaction (buy, sell, swap, income receipt)
- Date
- Quantity of crypto
- Value in sterling at the time of the transaction
- Transaction fees (which can be added to the cost basis or deducted from proceeds)
- Wallet addresses involved
- Exchange used
This requirement applies even to small transactions. Given that active crypto users may make hundreds or thousands of transactions per year across multiple wallets and exchanges, dedicated crypto tax software (such as Koinly, CoinTracking, or Recap) is commonly used to aggregate data and produce tax calculations.
Retaining records for at least 22 months after the end of the tax year is required. HMRC can open enquiries many years after a tax year.
DeFi and complex instruments
Decentralised Finance (DeFi) introduces additional complexity. Providing liquidity to an automated market maker typically involves:
- Depositing two assets into a pool, receiving LP tokens in return
- Holding LP tokens while earning fees
- Withdrawing assets by returning LP tokens
HMRC's position is that step 1 may be a disposal of the deposited assets (acquisition of LP tokens in exchange), and step 3 may be a disposal of the LP tokens. HMRC published a consultation in 2023 and subsequent guidance, but the area remains technically complex.
Wrapped tokens, bridges, and layer-2 networks each introduce further potential disposal events.
FCA consumer warnings
The FCA has classified most retail crypto activity as high-risk speculative investment. Firms offering crypto investment products to UK retail consumers must comply with FCA financial promotion rules, including prominent risk warnings. The FCA's official warning states that investors should be prepared to lose all the money they invest.
Crypto markets are unregulated in the same way that equity markets are regulated. Price volatility is extreme: assets can lose 50-80% of their value in a matter of months. For retirement planning purposes, large concentrations of crypto carry substantial sequencing risk — a significant fall in value close to or in early retirement can have an irreversible impact on projections.
Crypto in the context of retirement planning
If cryptocurrency forms a significant part of your net worth, modelling its role in a retirement projection requires accounting for:
- Volatility: Crypto returns are not normally distributed. Historical drawdowns have been severe and prolonged.
- Tax on disposal: Unlike pension drawdown (where 25% is tax-free) or ISA withdrawals (fully tax-free), large crypto disposals will generate CGT above the £3,000 exemption, taxed at 18% or 24%.
- No tax-sheltered wrapper: All growth is in a taxable environment, making annual CGT allowance management important.
- Sequencing risk: A drawdown in the years immediately before or after retirement can significantly impair long-term outcomes.
Some investors choose to convert crypto gains progressively into more stable assets as they approach retirement, using annual CGT allowances to minimise the tax cost of doing so.
These projections are for modelling purposes only. They do not constitute financial advice. Tax rules are subject to change. Please consult a qualified financial adviser before making financial decisions.