Crypto tax: a checklist for individuals

Everything below is drawn from HMRC's Cryptoassets Manual — the official guidance published on GOV.UK setting out how existing tax law applies to cryptoassets. It isn't personalised advice, and it doesn't cover every situation, but it's a solid starting point for understanding where you stand.

1. Work out which taxes apply to you

The starting position taken by the tax authority is that most individuals who hold cryptoassets do so as a personal investment, usually hoping for capital growth or to make particular purchases. For that kind of holding, Capital Gains Tax is the tax that applies when you dispose of your cryptoassets.

Income Tax and National Insurance come in separately, and apply to cryptoassets you receive from your employer as non-cash pay, or that you receive from mining, transaction confirmation, or airdrops. In the unusual case where you're running an actual financial trade in cryptoassets, with taxable trading profits, the Income Tax rules take priority over the Capital Gains Tax rules.

2. Know what counts as a disposal

For Capital Gains Tax, a "disposal" is a broad idea. The guidance treats all of the following as a disposal of your tokens:

• Selling tokens for money.
• Swapping one token for a different type of token.
• Spending tokens to pay for goods or services.
• Giving tokens to another person — unless the recipient is your spouse or civil partner.
• Putting tokens into a "mixer" or "tumbler" and getting a different type of token back.

On the other hand, moving your own tokens between wallets or addresses you control isn't a disposal, and neither is a mixer transaction that simply returns the same type of token you put in.

3. Understand pooling

You don't work out your gain or loss token by token. Instead, the rules require tokens of the same type to be combined into a single "pool" — so your bitcoin, your ether and your litecoin, say, would each sit in their own pool with its own running pooled cost. NFTs are the exception: because each one is separately identifiable, they aren't pooled.

Within each pool, the pooled cost rises when you acquire more of that token and falls when you dispose of some. Two matching rules sit ahead of the pool: acquisitions and disposals of the same token, in the same capacity, on the same day are treated as one transaction; and acquisitions made within 30 days after a disposal are matched to that disposal before anything falls back into the pool. Only what's left over, after those two rules are applied, affects the pool itself.

Practically, this means you need to keep track of what you spent acquiring each type of token, the running pooled cost for each pool, and the exact dates and quantities of every acquisition and disposal, so the same-day and 30-day rules can be applied correctly when you come to calculate a gain.

4. Mining and staking rewards

Tokens you receive from mining or staking are taxed one of two ways, depending on whether the activity amounts to a trade. Whether it does depends on factors like how much activity is involved, how organised it is, the degree of risk, and how commercial it is.

• If it's a trade: the tokens are treated as trade receipts.
• If it isn't a trade: the pound sterling value of the tokens at the time you receive them is taxable as miscellaneous income, though appropriate expenses can reduce the amount charged.

Either way, if you hold on to the tokens you received, you may owe Capital Gains Tax later when you eventually dispose of them.

5. Airdrops

Airdropped tokens aren't automatically taxable. The guidance draws the line at what you did to receive them:

• If you received the tokens without doing anything in return, and not as part of a trade or mining activity, they generally aren't subject to Income Tax.
• If they were given to you in return for, or in expectation of, some service, they're taxable — either as miscellaneous income or as receipts of an existing trade.

Even where an airdrop isn't taxed as income, disposing of it later can still create a chargeable gain for Capital Gains Tax.

Getting help

None of this is a substitute for advice on your own circumstances, and the guidance itself is clear that each case turns on its own facts. If you'd like help working through your own wallets, exchanges and transaction history against these rules, we're happy to talk it through.