United Kingdom Crypto Tax Guide 2024
Author: Stefano Passarello, CVO at Monx
Overview
- Starting from the tax year 2024-25, UK’s self-assessment tax return forms will introduce a distinct section for individuals and trusts who have traded crypto assets. This change, aiming to increase tax compliance, will differentiate crypto from the current “other” assets category. This move is anticipated to boost the exchequer’s revenue by around £30mn between 2025-28, aligning with a significant reduction in the capital gains tax-free allowance.
- The government’s efforts to position the UK as a crypto stronghold are evident, with initiatives aimed at enhancing transparency in crypto transactions. The new tax reforms could lead to more investors declaring taxable returns. It’s crucial for the HMRC to adapt tax rules to the ever-evolving crypto landscape.
Content
- What is a digital payment token in the UK?
- What is the definition of cryptocurrency in the UK?
- What are the tax incentives provided by the government this year for Web3 Businesses and Individuals?
- What are the crypto tax rates in the UK?
- How is crypto taxed in the UK?
- Is there a Tax-Free Allowance?
- When is the deadline for crypto taxes in the UK?
- How about withholding tax and stamp duty?
What is a digital payment token in the UK?
A digital payment token in the UK refers to a type of cryptocurrency or virtual currency that is used as a medium of exchange. They can be used to purchase goods and services or to facilitate financial transactions, similar to traditional fiat currencies, are secured using cryptography and operate on a decentralized ledger technology, such as blockchain. The use of digital payment tokens in the UK is regulated by the Financial Conduct Authority (FCA) and subject to anti-money laundering and counter-terrorist financing requirements. The FCA has also issued guidance on the classification and treatment of different types of crypto assets, including digital payment tokens, under UK financial regulations.
Both individuals and businesses in the UK can hold, transact, and accept digital payment tokens as a form of payment, though their use is still relatively limited compared to traditional fiat currencies.
What is the definition of cryptocurrency in the UK?
The HM Revenue & Customs defines cryptocurrencies (also called ‘cryptoassets’ or ‘tokens’) as digital assets protected by cryptographic techniques that can be transferred, stored, and traded electronically. HMRC identifies four main types:
- Exchange Tokens: Used for payments and investments, e.g., Bitcoin.
- Utility Tokens: Provide access to specific goods or services, often on DLT platforms.
- Security Tokens: Represent rights in a business, like ownership or profit claims.
- Stablecoins: Pegged to stable assets like fiat currency or gold to maintain value.
What are the tax incentives provided by the government this year for Web3 Businesses and Individuals?
The UK government has introduced several tax incentives and initiatives to support the growth of Web3 businesses and encourage individual participation in the Web3 ecosystem. They can be summarized in the following points:
- Crypto Asset Tax Exemption: The government has introduced a new tax exemption for qualifying crypto asset activities, such as staking and lending. Individuals who earn income from these activities may be eligible for a tax-free allowance of up to £1,000 per year.
- R&D Tax Credits for Web3 Businesses: Web3 companies engaged in research and development of new technologies, such as decentralized applications, blockchain infrastructure, or cryptography, can claim enhanced R&D tax credits, which allows them to deduct up to 230% of their qualifying R&D expenditures from their taxable income.
- Capital Gains Tax Deferral for Web3 Investments: Individuals who invest in qualifying Web3 startups or projects can defer their capital gains tax liability until they dispose of the investment.
- Employer National Insurance Contributions Relief: Businesses employing individuals in Web3-related roles, such as blockchain developers or cryptography experts, can claim a reduced rate of employer National Insurance contributions. This policy helps to offset the cost of hiring skilled Web3 professionals.
- Web3 Sandbox Initiative: The government has launched a regulatory sandbox program to support the development and testing of new Web3 products and services. Participating companies can benefit from tailored regulatory guidance and opportunities to engage with policymakers.
Businesses and individuals operating in the Web3 space should consult with tax professionals to understand the eligibility requirements and how to take advantage of these policies.
What are the crypto tax rates in the UK?
Cryptocurrencies are taxed in the UK despite being a relatively new asset class. If you hold cryptocurrencies like Bitcoin as a personal investment, dispose of them and make a profit, you must pay Capital Gains Tax on those profits. Additionally, if you earn cryptoassets through mining or as payment for services, you may be subject to Income Tax.
How is crypto taxed in the UK?
When you dispose of crypto asset exchange tokens (known as cryptocurrency), you may need to pay Capital Gains Tax. You pay Capital Gains Tax when your gains from selling certain assets go over the tax-free allowance. Generally speaking crypto taxes in the UK fall into two categories: Capital Gains Tax and Income Tax.
Buying and selling crypto can be liable for Capital Gains Tax (CGT) on any profits, while receiving cryptocurrency from mining, staking, or as a form of payment, is considered taxable income, thus can be subject to Income Tax.
Additionally, earning interest on crypto holdings or through DeFi platforms might also be taxable and you might need to pay other taxes if you receive cryptoassets. For more details, refer to this link.
Capital Gains Tax
Capital Gains Tax ranges from 10% to 20%, applied when disposing of cryptocurrency. You might need to pay Capital Gains Tax when you:
- sell your tokens
- exchange your tokens for a different type of cryptoasset
- use your tokens to pay for goods or services
- give away your tokens to another person (unless it’s a gift to your spouse or civil partner)
- donate tokens to charity (in certain circumstances)
In particular, Capital Gains Tax (CGT) is applied to the profit made from selling or disposing of an asset that has appreciated in value, including cryptocurrencies. The tax is only on the gain, not the total amount received. The CGT rate varies based on your taxable income and the type of asset. For higher rate taxpayers (earning over £50,270 in the 2023/2024 tax year), the rate for cryptocurrencies is 20%.
| Tax Bracket | Income Range | CGT Rate |
| Basic Rate | 12,571 £ – 50,270 £ | 10% |
| Higher Rate | 50,271 £ – 125,139 £ | 20% |
| Additional Rate | Over 125,140 £ | 20% |
Income Tax
It is important to note that income derived from cryptocurrencies is subject to income tax in the UK. Income Tax ranges from 20% to 45%, applied to crypto received as payment or mining rewards. Income tax rates in the UK are determined based on the amount of income earned and the individual’s residency status. 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 2023/2024, the rates are as follows:
| Tax Bracket | Income Range | CGT 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% |
Cryptocurrency income in the UK falls into three categories: employment income, self-employment income, and miscellaneous income.
Employment Income: Treated like a salary. Employers calculate the value in pounds, report, and deduct Income Tax and National Insurance through PAYE. Employees should keep records of the crypto received and its value.
Self-Employment Income: Report as self-employment income. Maintain records of transactions and their value in pounds. Include this income on your Self Assessment tax return and deduct eligible business expenses.
Miscellaneous Income: Includes income from mining or airdrops. Keep records of transactions and their value in pounds. Report on the Self Assessment tax return and pay Income Tax based on the crypto’s value.
| Capital Gains Tax on: | Income Tax on: |
| Selling Crypto for FiatSwapping CryptoSpending CryptoGifting Crypto(unless it’s to your spouse)Selling NFTs | Employee RemunerationMining RewardsBountiesStaking Rewards*Lending Rewards*Liquidity Mining Rewards**depends if deemed revenue or capital in nature |
Is there a Tax-Free Allowance?
Yes! The UK provides an Annual Exempt Amount as a tax-free allowance. For the 2023/2024 tax year, it is set at £6,000, decreasing to £3,000 for the 2024/2025 tax year. This amount can be deducted from your total gains, allowing you to realize gains up to this limit without incurring Capital Gains Tax.
When the trades result in capital losses, the losses can offset against the gains to reduce taxes. These losses can be registered on the self-assessment tax return indefinitely. Although it’s best to register losses in the year they occur, HMRC allows up to four years to do so. Even if the gains are low and below the tax-free allowance, it’s wise to register losses to offset future gains.
When is the deadline for crypto tax in the UK?
The deadline for crypto tax in the UK varies according to the method that is chosen to submit the cryptocurrency transactions to the HMRC (online method or paper method). In particular, if you choose:
- The paper tax return, the deadline for the submission is October 31st.
- The online tax return system, the deadline for the submission is January 31st, three months later than the paper return cut-off on October 31st.
How about withholding tax and stamp duty?
Withholding Tax on Crypto in the UK:
There is generally no withholding tax on crypto transactions in the UK. This is because cryptocurrencies are usually treated as assets/property for tax purposes. Any capital gains made on the disposal of cryptocurrencies are subject to Capital Gains Tax (CGT), which the individual is responsible for reporting and paying to HMRC and there is no withholding of this tax at source.
However, if someone is paid in cryptocurrency for goods or services, that would be considered trading income and subject to Income Tax, which may involve withholding under the PAYE system if the recipient is an employee.
Stamp Duty on Crypto in the UK:
Stamp Duty is not generally applicable to crypto transactions in the UK. This is because Stamp Duty is a tax on the legal instruments used to transfer ownership of certain assets, like shares and real estate. Since cryptocurrencies are generally held and transferred digitally, these transactions happen without the use of a legal document that would be subject to Stamp Duty. There are, however, some exceptions, such as if cryptocurrencies are held within a regulated collective investment scheme, in which case Stamp Duty Reserve Tax may apply on the transactions.
In conclusion, the key point to note is that while crypto transactions are not subject to withholding tax or stamp duty, both individuals and businesses are still responsible for properly reporting and paying any applicable taxes, such as Capital Gains Tax or Income Tax, to HMRC.
The tax treatment of crypto assets in the UK continues to evolve as the market matures, reach out to Monx at [email protected] to find out more!
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Check out the full 2024 Global Crypto Tax Report 2024