Crypto Tax in the UK: When Gains Become Taxable (Revaluation vs Crystallised Profits)

“More than one in ten UK adults own crypto.” That was the FCA’s finding in a recent survey. It’s a striking number. But here’s the catch: most of those people haven’t thought about the taxman.

A client once told me proudly how his £3,000 Bitcoin investment grew to £25,000. He assumed he’d only pay tax when he transferred it back to pounds. He was shocked when I explained that swapping Bitcoin for Ethereum, or even buying a new laptop with it, was already a taxable event. The taxman doesn’t care whether you “cashed out.” What matters is whether you’ve crystallised a gain.

Let’s walk through how HMRC looks at crypto. We’ll clear up the difference between revaluation (just watching the value go up) and crystallised profits (disposing of your crypto). More importantly, we’ll cover what this means in real life.

Is cryptocurrency taxable in the UK?

HMRC’s view in plain English

Yes, crypto is taxable in the UK. But not every situation creates a tax bill. If you buy some Bitcoin and it doubles in value while sitting in your wallet, HMRC isn’t interested yet. That’s a revaluation — the gain exists on paper, but it’s not crystallised.

When tax comes into play

Tax is triggered when you do something with your crypto: sell it for cash, swap it for another token, spend it in a shop, or gift it to someone (unless it’s your spouse or civil partner). Think of it as a line in the sand. Before the action, no tax. After the action, you may owe CGT or Income Tax depending on the situation.

How is cryptocurrency treated for tax purposes in the UK?

Two main tax routes: capital or income

HMRC sees crypto as property. That means any profit is usually Capital Gains Tax (CGT). But if you’re earning crypto, say from mining, staking, or being paid by a client, it’s treated as income first.

Here’s a simple way to think about it. If you bought crypto hoping it would go up in value, you’re in the CGT camp. If you received crypto as payment or reward, it’s income. And yes, sometimes both taxes can apply.

An example

One of my clients mined Ethereum in 2019. That was income and taxed at his normal income tax rate at the time. When he sold the same Ethereum in 2021, it had skyrocketed. The extra profit on disposal? That was CGT. Two taxes. One asset.

Do I pay Income Tax or Capital Gains Tax on crypto?

Income Tax situations

Income Tax applies when crypto is received as earnings: from your employer, a freelance project, mining, or staking. In short, if it’s a reward or payment, you’ll pay Income Tax first.

Capital Gains situations

Capital Gains Tax applies when you sell or dispose of crypto you hold as an investment. For example, if you bought Litecoin for £1,000 and sold it later for £3,000, the £2,000 profit is subject to CGT.

A “double hit” example

Let’s say you stake coins and earn £500 worth of rewards. That £500 is taxed as income right away. Later, if you sell those same rewards for £800, the £300 increase is taxed under CGT.

Do I pay tax on crypto if I only use it for payments?

Buying with Bitcoin isn’t tax-free

It surprises many people, but yes, - spending crypto is taxable. When you use crypto to buy a product, it counts as if you’d sold it. Imagine paying £2,000 worth of Bitcoin for a new laptop. If you originally bought that Bitcoin for £800, HMRC says you’ve crystallised a £1,200 gain.

Everyday spending

The same principle applies whether you’re buying a laptop or a £5 coffee. The problem? Most people don’t record those small transactions, which makes things messy when it’s time to report.

How does HMRC treat crypto mining?

Hobby vs business

HMRC draws a line between casual hobby mining and professional mining. If you’re tinkering with a home setup and occasionally earning a few tokens, the income usually falls under “miscellaneous.” But if you’ve set up racks of machines in a warehouse, it’s business income.

What that means in practice

Hobby income is subject to Income Tax, but not National Insurance. Business income is fully taxable and may also mean NI contributions. One client who started with a hobby setup in his garage found himself paying NI when he scaled into a profitable operation.

Is staking crypto taxable in the UK?

The initial tax point

When you receive staking rewards, HMRC treats them as income. They’re valued in pounds at the time you get them and taxed like any other earnings.

Later disposal of rewards

But the story doesn’t end there. If those staking rewards rise in value and you sell them later, you’ll also face CGT on the profit. It’s a two-step process that catches many people off guard.

Are crypto airdrops taxable in the UK?

When airdrops are tax-free

If you receive tokens out of the blue, with no strings attached, HMRC doesn’t usually tax them as income.

When they’re taxable

But if the airdrop is linked to work you’ve done, like promoting a project or using a specific platform, it’s income. And of course, any later gain when you sell is CGT.

Is crypto gifting taxable in the UK?

Gifting to family or friends

Most gifts are taxable disposals. That means if you gift £10,000 worth of Bitcoin to your cousin, you’ll pay CGT as though you sold it.

The spouse exemption

There’s one big exception: transfers between spouses or civil partners are tax-free. This opens the door to some smart tax planning. If one partner pays less tax, transferring crypto before disposal can save a significant amount.

Donating to charity

Gifts to registered charities are usually free from CGT, though you’ll need the right documentation.

What counts as a taxable event in crypto?

• Selling crypto for pounds.

• Swapping one token for another.

• Spending crypto on goods or services.

• Gifting crypto to anyone outside your spouse or civil partner.

These all crystallise gains and losses.

What is the current Capital Gains Tax allowance in the UK?

Where it stands today

For 2024/25, the CGT annual allowance is just £3,000. Not long ago it was £12,300.

Why it matters

That shrinking allowance means even modest investors are now caught in the net. If your gains go above £3,000, you’ll need to report them.

How do I calculate Capital Gains Tax on crypto?

The basics

The formula is simple: sale price minus purchase price minus allowable costs. Allowable costs include transaction fees, professional valuations, and advertising for a buyer.

Pooling rules

Unlike traditional shares, you don’t track each coin separately. Instead, all of one type of token goes into a “pool.” Each time you buy more, the average cost of the pool changes. When you sell, you deduct a proportion of that pool.

A quick example

If you bought 2 ETH at £1,000 each and later 2 more at £2,000 each, your pool is 4 ETH with a cost of £6,000 (£1,500 each). If you sell 1 ETH for £3,000, your gain is £1,500.

Compliance: what HMRC expects

Reporting crypto gains

If your total gains exceed the annual allowance (£3,000), you must report them via Self Assessment. You’ll need to complete the SA100 (tax return) and SA108 (Capital Gains summary). Even if your gains are below the allowance, it’s still smart to declare losses, because they can be carried forward to reduce future tax bills.

Deadlines to know

• 31 October – paper tax return deadline.

• 31 January – online return and payment deadline.

Miss these, and you face automatic penalties.

How far back HMRC can go

If you’ve forgotten to declare crypto, HMRC can go back at least 4 years for mistakes, 6 years for carelessness, and up to 20 years if they believe it was deliberate.

Penalties and interest

Not declaring crypto gains can lead to fines, interest on unpaid tax, and in extreme cases, even criminal prosecution. HMRC already receives data from exchanges like Coinbase and Binance, so it’s not worth gambling on invisibility.

How to stay ahead of HMRC

• Keep records – transaction history, wallet addresses, exchange statements, and dates.

• Use software – portfolio trackers can simplify pooling calculations.

• Plan with care – timing disposals, using your spouse’s allowance, and harvesting losses can save you real money.

• Seek advice – the rules are still evolving. Speaking to an accountant who understands crypto isn’t a luxury, it’s a safeguard.

👉 Final word: HMRC doesn’t care about revaluations. You can watch your crypto soar and never owe a penny. But the moment you crystallise a gain, by selling, swapping, or spending, it’s a different story. The rules may feel complex, but with careful records and smart planning, you can stay compliant and keep more of your profits.

Disclaimer:

The content of this blog is for general informational purposes only and should not be considered professional tax advice. The information is correct at the time of publishing but may change following future UK budget announcements or updates to HMRC guidance. Individual circumstances vary, and tax obligations can differ based on your personal situation. We strongly recommend consulting with us or a qualified tax professional to receive advice tailored to your specific needs.