Attention UK Crypto Investors: Understanding how cryptocurrencies are taxed is crucial for compliance and financial planning. In this article, we’ll take a closer look at the crypto tax rates in the UK for 2023 to share some essential insights.
We will explore the tax treatment of various crypto activities, including buying, selling, and exchanging cryptocurrencies. We will also discuss the tax rates for different types of crypto gains, such as capital gains tax (CGT) and income tax, so you know how much tax you need to pay on your crypto.
Let’s dive in and gain a clearer understanding of the crypto tax rates in the UK and how they may apply to your specific situation.
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👆 UK crypto tax rates at a glance
- The HMRC classifies crypto as assets rather than currencies
- Capital gains tax rates (10% to 20%) apply whenever you dispose of crypto in some way
- Capital gains below £12,300 are tax-free
- Income tax rates (20% to 45%) apply whenever you receive crypto as payment or mining rewards
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Do I have to pay taxes on crypto in the UK?
If you are involved in the world of crypto as an enthusiast or investor, it is important to understand the tax implications in the UK. Cryptoassets, including Bitcoin, are indeed subject to taxation.
The HMRC (His Majesty’s Revenue and Customs) has established that cryptoassets are classified as assets rather than currencies. This classification means that any profits or income from cryptocurrencies needs to be taxed.
What are the taxes on crypto in the UK?
Crypto taxes in the UK fall into two categories: Capital Gains Tax and Income Tax. Capital gains tax ranges from 10% to 20% and applies whenever a cryptocurrency is disposed of in some way. Income tax ranges from 20% to 45% and applies to any crypto received as payment or mining reward.
When do I have to pay capital gains tax (CGT) on crypto?
You need to pay capital gains tax whenever you “dispose” of a cryptoasset. These transactions include:
- Selling crypto in exchange for Fiat (including rewards from Staking, Lending, Liquidity Mining, Airdrops e.g.)
- Swapping crypto for crypto (including rewards from Staking, Lending, Liquidity Mining, Airdrops e.g.)
- Gifting crypto (except to your spouse or civil partner)
- Spending crypto on goods and services
- Selling NFTs
Capital Gains Tax-Free Allowance
The tax-free allowance provides a threshold for the amount of gain you can make from selling your cryptoassets without incurring Capital Gains Tax (CGT).
In the tax year 2022/23, the Capital Gains Tax-Free Allowance for individuals and personal representatives was set at £12,300, while for most trustees, it was £6,150. This means that during that tax year, you could make gains of up to £12,300 without needing to pay CGT.
However, in the tax year 2023/24, the allowance has been reduced to £6,000 for individuals and personal representatives, and £3,000 for most trustees. It’s important to be mindful of this change and plan your crypto transactions strategically, as the tax-free buffer is now smaller.
Learn more about the allowances here: Crypto Tax-Free Allowances UK.
UK capital gains tax rates
The rate you pay depends on your taxable income and the type of asset, but for higher rate taxpayers (those earning over £50,270 in the 2022/2023 tax year), the rate for cryptocurrencies is 20%.
Here’s an overview of the capital gains tax brackets by income:
| Tax Bracket | Income Range | CGT Rate on Assets | CGT Rate on Property |
|---|---|---|---|
| Basic Rate | £12,571 – £50,270 | 10% | 18% |
| Higher Rate | £50,271 – £125,139 | 20% | 28% |
| Additional Rate | Over £125,140 | 20% | 28% |
Let’s use an example to make this clearer. Say your annual income is £50,000, and you’ve made a gain of £13,000 from selling Bitcoin.
- First, subtract your tax-free allowance from your total gain: £13,000 (gain) – £12,300 (allowance) = £700. This £700 is your taxable gain.
- As a higher rate taxpayer, your capital gains tax rate for cryptocurrencies is 20%. So, you’ll pay 20% tax on the £700, which equals £140.
So in this case, you’d owe £140 in capital gains tax on your Bitcoin sales.
Find more information about the specific taxation of Bitcoin in our guide: Bitcoin Tax UK
When do I have to pay income tax on crypto?
You need to pay income tax whenever you receive crypto as a payment. This includes:
- Employee remuneration
- Payment for goods or services
- Mining Rewards
- Airdrops (in most instances)
- Staking Rewards (depends if deemed capital or revenue in nature)
- Lending Rewards (depends if deemed capital or revenue in nature)
- Liquidity Mining Rewards (depends if deemed capital or revenue in nature)
- Potentially also income from Play to Earn and similar operations
In the UK, cryptocurrency income can fall into different categories for tax purposes, including employment income, self-employment income, and miscellaneous income. Each category has specific tax implications that individuals need to be aware of.
Cryptocurrency as employment income
When cryptocurrency is received as employment income, it is treated similar to receiving a salary. The employer calculates the value of the cryptocurrency in British pounds at the time of receipt, and this value is subject to Income Tax and National Insurance contributions. Employers report and deduct the necessary taxes through the PAYE system, ensuring compliance. Employees should maintain records of the cryptocurrency received and its value in pounds.
Cryptocurrency as self-employment income
For self-employed individuals who receive cryptocurrency as payment for services or running a business, it is necessary to report this income as self-employment income. Records of all transactions and their value in pounds should be maintained. When filing the Self Assessment tax return, include details of the self-employment income and consider deducting eligible business-related expenses. Keeping separate records for cryptocurrency transactions can facilitate the reporting process.
Cryptocurrency as miscellaneous income
Cryptocurrency can also be classified as miscellaneous income, which includes income from non-traditional sources such as mining or airdrops. It is important to keep records of all transactions, including the market value in pounds at the time of receipt. This income should be reported on the Self Assessment tax return, and Income Tax is payable based on the value of the received cryptocurrency. For mining income, include the value of the mined coins and any associated fees as part of the income calculation.
UK income tax rates
Income tax rates in the UK are determined based on the amount of income earned and the individual’s residency status. It is important to note that income derived from cryptocurrencies is subject to income tax in the UK. The specific income tax rates applicable to cryptocurrency income will depend on the individual’s overall income and their tax bracket.
There are three main bands for income tax rates: basic rate, higher rate, and additional rate. For the tax year 2022/2023, the rates are as follows:
| Tax Bracket | Income Range | Income Tax Rate |
|---|---|---|
| Personal Allowance | Up to £12,570 | 0% |
| Basic Rate | £12,571 – £50,270 | 20% |
| Higher Rate | £50,271 – £125,139 | 40% |
| Additional Rate | Over £125,140 | 45% |
Let’s look at an example to make this clear.
Say you’re a freelancer with an annual income of £30,000, and you’ve been paid £5,000 worth of Bitcoin for a project. Your total income for the year is now £35,000, which still falls within the basic rate band. Therefore, you’d pay 20% tax on your Bitcoin earnings, which equals £1,000.
According to the Autumn Statement the threshold for the additional rate is lowered from £150,000 to £125,140 from April 2023.
Let’s look at an example to make this clear.
Say you’re a freelancer with an annual income of £30,000, and you’ve been paid £5,000 worth of Bitcoin for a project.
Your total income for the year is now £35,000, which still falls within the basic rate band. Therefore, you’d pay 20% tax on your Bitcoin earnings, which equals £1,000.
Other forms of crypto taxes in the UK
While capital gains tax and income tax cover basically everything directly related to your crypto activity, there are two more types of tax that might come into play under very specific circumstances.
Value added tax (VAT)
In the United Kingdom, the exchange of cryptocurrencies for traditional currency is not subject to Value Added Tax (VAT). This exemption is based on a ruling by the Court of Justice of the European Union (CJEU) in the Hedqvist case, which determined that cryptocurrencies should be treated similarly to traditional currencies for VAT purposes.
The UK has incorporated this ruling into its VAT legislation under Schedule 9 Group 5 of the VAT Act 1994. This means that when you purchase cryptocurrencies, you are not required to pay VAT on the coins or tokens themselves.
However, it’s important to note that certain transactions involving cryptocurrencies may still be subject to VAT. When utilizing cryptocurrencies for payment of goods or services, no value-added tax (VAT) is imposed on the cryptocurrency itself. Nevertheless, the customary VAT regulations are applicable to the purchased goods or services.
To illustrate, when purchasing a laptop with Bitcoin, you are not required to pay VAT on the Bitcoin, but the standard VAT will be applicable to the laptop.
The standard VAT rate is 20%.
Inheritance tax
In the United Kingdom, Inheritance Tax is applicable to the estate of a deceased individual, including their cryptocurrency holdings. Cryptocurrencies are considered assets and are subject to Inheritance Tax if the total value of the estate exceeds the threshold of £325,000.
To determine the value of cryptocurrency holdings for tax purposes, the market price in British pounds on the date of death should be used. It is crucial to maintain accurate records as HMRC may request this information.
Certain reliefs or exemptions can help reduce the amount of Inheritance Tax owed. For example, leaving assets to a spouse, civil partner, charity, or community amateur sports club can eliminate Inheritance Tax. “Taper relief” may also apply for assets gifted within seven years before death.
If a home is passed on to children or grandchildren, the residence nil rate band (RNRB) can potentially increase the Inheritance Tax threshold.
The executor or administrator of the estate is responsible for paying any Inheritance Tax due within six months from the end of the month of death. Beneficiaries do not personally pay this tax; it is deducted from the estate.
The inheritance tax rate is 40%. It can be reduced to 36% on some assets if 10% or more of the net value is donated to charity.
UK tax deadline 2023
In the United Kingdom, the tax year spans from 6th April to 5th April of the following year. HMRC has set deadlines for filing tax returns and paying any taxes owed, including those on cryptocurrency gains:
- Paper tax returns need to be submitted by 31st October following the end of the tax year. As an example, if the tax year ends on 5th April 2023, paper tax returns must be in by 31st October 2023.
- When it comes to online tax returns, 31st January following the end of the tax year is the deadline. Using the same example, if the tax year ends on 5th April 2023, online tax returns should be filed by 31st January 2024.
File your crypto taxes easily with Blockpit
Blockpit creates the most comprehensive crypto tax reports in PDF format. The report provides information about all your balances and transactions and can be used as proof of origin with banks or tax advisors. It contains all relevant transactions of your account in the selected tax year and shows details such as timestamp, amount, asset, costs and fees of the individual transactions.
Using Blockpit couldn’t be easier:
1. Import your transactions
Blockpit offers direct integrations for crypto exchanges, wallets and DeFi protocols. Automatically import your transactions via API integration, wallet address synchronization, or by manually uploading an Excel file.
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2. Validate & Optimize
Blockpit offers smart insights and suggestions to optimize your tax report, fix issues, add missing values and to validate your transactions.
3. Generate your tax report
Generate your compliant tax report with the click of a button. Our tax engine calculates your tax report on the basis of the UK tax framework.
We are currently working on implementing a country-specific UK tax framework. Until then, we provide you with a generic report calculating capital gains, income and margin trading profits from cryptoassets.
