As with any other commodity investors deal with, from real estate to capital gains, you do have to pay taxes on cryptocurrency. This is not something many consider when getting into the world of crypto assets, and it is not something widely discussed online as the focus is usually on the profits that can come from this endeavor.

However, if you make crypto trading profits, you need to pay tax like any other income, which can reduce how much you take home at the end of the day.

In this guide, we are not only going to explain how and why you need to pay crypto taxes but also the ways that you can avoid these payments altogether. Learning how to avoid crypto taxes in the UK legally will allow you to take home more profit than ever before.

Do I Need To Pay Tax On Crypto In The UK?

There is no specific crypto tax that you will face when dealing with these kinds of assets in the UK, but you do still have to pay tax on crypto.

Your digital assets will be subject to two main kinds, which are income tax and capital gains tax, much like any other asset or commodity you can trade. In some cases, other taxes like National Insurance Contributions (NIC) may be considered if you get paid for work in cryptocurrency, but for the most part, this is an income tax and capital gains taxable event.

The kind and the amount that you will need to pay for crypto assets will vary based on the specific transactions you are making with crypto. For example, if you are seen to be making an income with crypto, with regular payments being made into your accounts, then you will have to pay income tax for these, but if you are seen to be selling, swapping, or trading to make gains through crypto, then capital gains tax will apply.

This was outlined in 2019 by Her Majesty's Revenue and Customs (HMRC) when specific guidance regarding crypto tax was given, and an official statement was released claiming that the trading of currencies like Bitcoin is a taxable event.

Failure to meet these requirements can get you in a lot of trouble, with heavy fines and even prosecution on the cards if you are seen to be participating in tax fraud.

Luckily, there are some legal ways that you can reduce the tax required for crypto and even avoid paying taxes altogether in some circumstances.

How Crypto Works In The UK

To understand why you are required to pay tax on cryptocurrency in the UK, we need to look at how the system works overall.

The HMRC sees crypto most commonly as capital gains, although it can also be considered an income if the payments are frequent. If you are working with a capital gains classification and make disposal, then you will have to face capital gains tax.

When it comes to assets like this, disposal is:

  • Selling crypto for GBP or another fiat currency
  • Trading crypto assets for another form of crypto
  • Trading crypto assets for another form of crypto
  • Trading crypto assetsGifting crypto, which does not apply to your spouse or civil partner for another form of crypto

Whenever you want to sell, trade, spend or gift crypto in the UK, you will be subject to capital gains tax. Tax is not paid on the entire proceeds whenever you make disposal with crypto, as this is instead taken from any profits made.

How Much Tax Will I Pay?

The UK does not have any short-term or long-term capital gains rate to apply to crypto-assets, and instead, everything is covered by the same rate.

The amount of capital gains tax you will have to pay depends on how much you earn, and it is usually a percentage between 10% and 20%.

To calculate capital gains on any crypto asset, you need to first determine the Cost Basis. The Cost Basis is how much it cost you to buy crypto, including transaction fees. If crypto assets have come from another means, such as airdrop, then you will also need the Fair Market Value to determine the total capital gains.

With this, you can determine your capital gains or capital loss which determines how much tax you will need to pay. Capital is determined by the difference in value between the coin cost when you acquired the asset to the Fair Market Value when you disposed of it.

If you have a profit from this formula, then you will need to pay capital gains tax on this amount. Capital gains tax does not need to be paid on any loss but lost money should still be recorded as it can contribute to the tax you will have to pay in the future.

How To Avoid Paying Taxes On Crypto In The UK?

It is possible to avoid having to pay income tax or capital gains tax on crypto in the UK legally. What you want to avoid will vary based on how crypto is considered in your account by HMRC and, therefore, what type applies.

There are some ways that you can avoid paying both forms of tax, and traders should take advantage of the tax strategies in place if they want to hold onto their profits.

Try out the following ahead of the next tax season to keep hold of as much income as possible: Tax Advantage Of Tax-Free Thresholds

Every individual is given a tax-free allowance in the UK, which is a set amount of money that they can earn before having to pay capital gains tax. As a UK resident, you only have to pay for crypto assets if they surpass the £12,300 tax-free allowance.

This tax-free threshold is known as the Annual Exempt Amount and applies to all individuals in the UK. Capital gains taxes can be avoided by not going over this threshold and working your disposal strategy to prevent this from happening: Use The Trading and Property Tax Break

If you have earned less than £1,000 in crypto this tax year, then you do not have to claim it at all to HMRC. This is because every UK taxpayer has another tax-free allowance for trading and property.

The limit of this tax bracket is £1,000 unless you are investing in both, for which you will get an allowance of £2,000. Crypto assets can be considered as trading profits when under this amount and therefore do not need to be claimed: Balance Crypto Losses

It is important to keep a note of your losses when working out your capital gains, as this can be used to reduce tax on cryptocurrency.

If you are working in a crypto loss, this amount can be offset against the total taxable income for the year to reduce the amounts required. Losses can be claimed for up to four years from the end of the financial year where the loss took place, but they all need to be reported to HMRC to take advantage of this tax-free perk: Invest Into A Pension Fund

It is possible to contribute to your CGT allowance by investing crypto into a pension fund. When you contribute to a pension with net relevant earnings, you can reduce the CGT allowance percentage for all cryptocurrencies. This happens because pension contributions extend an individual's income tax band's upper limit based on the gross contribution paid.

For example, by making a gross contribution of £10,000 to a pension fund, you can increase the payable higher rate tax from £46,350 to £56,350. If your capital gain is still within the extended personal annual allowance amount after adding it to other taxable income in the same financial year, your capital gains liability can increase from 10% to 20%.

This is best done when working with a tax advisor or financial expert to ensure you do avoid paying tax, as opposed to getting yourself into further issues: Switch Your Tax Rate

If you have a lot of time left in the financial year, then this is a possible strategy to reduce your tax obligations or current tax rate. You can change your tax liabilities through things such as taking a strategic salary cut, being about to retire, or if you are heading to university or college.

With patience and good timing, you can time your changing tax rate to match with crypto disposal for effective tax avoidance: Make a Crypto Donation

It is possible to reduce your cryptocurrency tax by donating some of your cryptocurrency investments. As with any other personal investment, trading huge amounts in the form of a donation can increase your annual tax-free allowance and allow you to keep more of your crypto income overall.

Donating your digital assets is something you should consider if you already have a sizeable crypto investment in the first place and are approaching your tax return date. You can lower your crypto gains tax by donating crypto transactions to charity, and you will get a tax deduction based on this amount, including any capital gains.

This only applies if the charity is registered and the donation of crypto gains is not made to someone related to you or someone who will benefit either directly or indirectly from this donation. This is another thing you should get investment advice on before attempting: Transfer Crypto To Spouse Or Civil Partners

It is possible to create liquidity pools with your legal partner that can help you maintain the majority of your cryptocurrency profits. Her Majesty's Revenue and Customs allows for exceptional circumstances, such as transferring crypto to your spouse or partner tax-free.

You do not have to pay tax on cryptocurrency that is being transferred between legal partners. You can reduce the amount of crypto tax you have to pay, mainly capital gains taxes, by transferring crypto income to your spouse or civil partner. This allows you to make use of both your tax liabilities and annual CGT allowances this tax season so you can keep more of your miscellaneous income.

Working with your partner for cryptocurrency transactions effectively doubles your tax liability to £24,000 as you can make use of both in this tax bracket: Invest In Government Schemes

The UK tax law also gives exceptions for investments into government schemes, for which you can use cryptocurrency in the UK. Using your profits from crypto mining or selling crypto, you can invest in one of two government schemes to increase your profits this tax year.

Investing in an Enterprise Investment Scheme is a good option to mitigate cryptocurrency tax as any gains, such as in the form of cryptocurrency investment, made into one of these are exempt from the capital gains tax bill for over three years.

Another option to optimize crypto tax is Social Investment Tax Relief, which many crypto investors can consider as it gives them more capital gains tax liability. Both of these schemes can remove crypto from your capital gains tax bill for over three years, depending on the amount of your mining income that has been invested.

Other Ways To Reduce Crypto Tax

A great tool for crypto investors to use if they are looking to reduce their basic rate income tax-free allowance or capital gains allowance is a losses calculator. Without working out your losses in your mining income, you will not be able to see any further opportunities to reduce crypto tax.

HMRC recommends crypto investors and those with other miscellaneous income in this asset class to use a calculator or loss app that can help them see more tax reduction opportunities. There is great crypto tax software available, which has been approved by the government and should be used by investors to determine whether they have to pay income tax or pay capital gains tax, and how much they have made within a financial period.

coinpass can be used to determine cryptocurrency tax and help you see opportunities to reduce this amount based on your losses.

Working out your losses can provide more opportunities to increase your tax bracket and help you keep more of your investments. Realized losses can be offset against your income tax bill and, unlike other options, this never involves selling crypto or getting rid of assets you currently own to reduce this amount.

What Happens If I Do Not Pay Tax on Crypto?

Cryptocurrency investments are subject to tax in the UK above a certain threshold. Depending on the amount you make from crypto and the frequency of the payments, you may have to pay capital gains tax, income tax, or even national insurance.

Income tax is charged when the government sees you be earning an income from crypto, whereas capital gains is an additional payment where you make gains from this.

No matter what kind of tax you may have to pay on crypto, there are serious consequences that can come from failing to pay. From fines to prosecution, it is a legal necessity to pay tax on crypto in the UK if you earn over a certain amount.

You should not avoid paying taxes completely when it comes to crypto, but as you can learn from other investors, it is possible to reduce your tax bill, and you can try the suggestions in this guide to do so.


As with any other income or profit, you will have to pay tax on crypto over a set amount.

There are limits for tax-free allowances in the UK, which you can take advantage of to reduce how much you need to pay, as well as other loopholes to reduce your tax bill at the end of the year. Crypto is considered to be a taxable income and is something that cannot be avoided completely if you want to stay on the right side of the law.

However, it is possible to reduce your tax bill and perhaps pay nothing at all based on how much you make from crypto throughout the financial year. Determining your losses can be a good way to see more opportunities for reducing your bill, as anything you have lost can be offset against capital gains tax and reduce the amount requested from you at the end of the year.

There are other options for investors as well, such as donating to charity, transferring funds to a legal partner, and participating in government schemes that can legally reduce your bill and help you keep hold of your profits.  It may be a good idea to seek professional advice before moving your funds to ensure you are working in the best way for your needs, and we can help by working with many investors across the UK.