However, with great power comes great responsibility, and this is something many crypto investors forget at first. Many people want to get into crypto because of the incredible profits they believe they can gain from these investments, and while this may be possible for some, there is more to it than that.

For example, like all other assets, crypto is subject to capital gains tax in the UK. Anything that generates capital gains is subject to this tax, which includes crypto gains, and this may not be something you have considered. Failing to pay the necessary income tax on your crypto gains can get you into a lot of trouble with the authorities and is something that should be handled carefully by all investors.

In this guide, we are sharing what you need to know about your crypto tax bill, as well as the legal ways that you can reduce these costs.

Is Crypto Taxed In The UK?

The first thing to understand when it comes to cryptocurrency is whether it is tax-free. Many crypto traders in the UK have no idea of the taxation of their assets, what the limits on taxable income are, and whether they need to pay these fees on their trading.

This can get you in a lot of trouble with the authorities and may make crypto trading worth less than you thought.

If you live and trade crypto in the UK, then there are tax implications on this, which means you do have to pay a tax bill for these kinds of assets. Cryptocurrencies are subject to capital gains tax, like any other asset you may trade over a set allowance.

This ruling was outlined officially in 2019 by HMRC in a guidance document regarding cryptocurrencies and digital assets. These guidelines indicate that crypto and other digital tokens are a taxable endeavor and, therefore, a tax bill should be paid by investors.

Like any other taxable income, there are specific guidelines for the kind of tax that needs to be paid on crypto and whether there are any limits regarding this. If you are buying and selling crypto in the UK individually, then your gains are subject to capital gains tax.

Another tax may need to be paid on crypto, depending on how and where you trade. If you buy and sell cryptocurrency frequently across the UK, then your assets may also be subject to income tax.

Those who are paid in cryptocurrency gains for the work they do may also be subject to tax bills, as depending on the amount, you may be given a National Insurance Contributions (NIC) tax code for crypto, just like you would with any cash payment.

With this in mind, crypto is considered a taxable income in the UK, and therefore investors do need to pay tax on these assets to prevent getting into trouble with the necessary authorities.

Cryptocurrency Classifications in the UK

Before you can determine what kind of tax bill you will be given for your cryptocurrency, it is important to understand how HMRC categorises these kinds of assets.

In the UK, crypto is not classified in the same way as money or other currency. Instead, HMRC has four main categories for digital assets of this kind which are:

1) Stablecoins

These are the cryptocurrencies that have fiat money or other assets' value, meaning there is a connection to other capital gains that already exist and are taxed in the UK. Examples of stablecoins include Bitcoin.

2) Exchange Tokens

These are the cryptocurrencies that can be used as a form of payment.

3) Security Tokens

These are the cryptocurrencies with certain rights or ownership in a business, such as entitlement to a stake in future gains.

4) Utility Tokens

These are the cryptocurrencies that are used to give access to certain goods or services on a specific platform. These tokens are mostly used on distributed ledger technology (DLT).

These are the four categories of cryptocurrency that will be taxed in the UK, along with airdrops, mining crypto, and confirmation awards. These are also subject to taxation and will be added to your crypto tax bill, along with the digital assets themselves.

As well as your crypto capital gains, HMRC may also consider your capital losses as a tax liability. This means that if you sell your crypto at a loss, this loss may be considered in your final tax bill and may contribute to the reduction of the total required.

Tax may also be required when you trade crypto for other assets or fiat, depending on the amount. All of this is outlined in the HMRC guidelines for cryptocurrency profits and should be considered by all traders before making any commitment.

Basics Of Cryptocurrency According to UK Guidelines

According to any tax professional, you can work with, investing in cryptocurrency is a similar taxable event as investing in any other asset or long-term capital gains such as stocks, bonds, and real estate.

This fact can make it easy for investors to determine what they need to pay on their cryptocurrencies and may make it easier to keep track of things when you pay taxes. As with any other asset, the same rules regarding capital gains and capital losses apply to crypto.

A term that you should be familiar with when it comes to determining the tax rate of crypto is 'disposal'. This is a broad term that relates to anytime or occasion when you may get rid of crypto, contributing to your net capital loss.

Disposal, according to HMRC, includes:

  • selling crypto for money
  • exchanging one form of crypto for another
  • using crypto to pay for goods and services
  • giving crypto away to another person

As you release crypto whenever you partake in these scenarios, which means your capital gains and losses are subject to cryptocurrency taxes in the UK.

These methods can also be used to reduce your cryptocurrency taxes and may be recommended by a tax professional when trying to maximise your long-term gains.

Crypto tax software applies to almost all forms of digital tokens, and these are something that should be addressed in your annual tax return to determine where you stand. Failure of tax reporting can be considered tax fraud, which has negative consequences for people, so make sure you list all assets alongside your ordinary income on your annual tax return.

Determining Capital Gains and Losses For Crypto

This is something you should do at least a year before the end of the tax year to determine how much of your profit is tax-deductible. This information will also be needed to reduce your crypto tax payments at the end of the tax year, so it is worth doing, whether you work with mining crypto, crypto donations, or investing in digital assets.

To determine the capital gains tax rates, you need first to understand the Fair Market Value. The Fair Market Value refers to the cost of cryptocurrency at the time you bought, traded, or disposed of it, excluding exchange fees. As well as the Fair Market Value, you also need to know the Cost Basis of any digital asset, which refers to the amount it cost you to acquire the coin.

To determine the long or short-term capital gains tax-deductible amount at the end of the tax year, follow this formula:

Fair Market Value minus Cost Basis = gains and loss.

This can be used to determine both short-term gains and long-term gains, depending on the circumstance, and this amount is required to show how much tax should be paid on sales proceeds by the end of the financial year alongside ordinary income.

Can I Minimize Crypto Taxes?

While you cannot and should not avoid paying tax on your crypto assets, it is possible to reduce the amount that you need to pay.

Like all other forms of tax, you need to pay taxes to remain on the right side of the law, but there are ways that you can legally reduce your crypto tax bill in the UK to keep as much profit as possible from your efforts.

Failing to pay the right amount of crypto tax can result in fines, heavy penalties, and even prosecution, so it should be declared and paid on time. This applies to all capital gains taxes and income tax, so the same rules should be considered when it comes to crypto.

There are some ways that you can legally reduce crypto tax which is a better option than tax avoidance. It is a way of still behaving legally and paying some crypto tax on your assets but also being able to keep as much profit as possible.

The ways that you can reduce how much you need to pay taxes rely on the tax-free allowances for all assets given by the government, as well as clauses in any taxable event for long-term capital gains.

Why Should I Minimise Crypto Taxes?

Crypto is subject to both capital gains and income tax, depending on how much you make through this endeavour. Like any ordinary income, you need to meet these tax payments on time to prevent being accused of tax fraud.

Income taxes need to be paid on time to prevent issues later on, and as they apply to crypto, you may have a hefty bill at the end of the financial year. The main purpose of reducing crypto taxes is to simply save money.

By reducing taxes, you can hold onto more of your crypto profits as well as your ordinary income while still following the legal requirements. Maintaining both long and short-term gains is something everyone can appreciate, but this is especially the case if you are in a low-income year.

Being able to reduce any term capital gains tax or income tax can be greatly beneficial to investors and allows you to hold onto more money, which is why you should consider the following tips before the end of the tax year.

How To Minimise Crypto Taxes Legally

It is possible to reduce cryptocurrency tax and keep more profits from your crypto tokens than you may have expected. There are some legal ways that you can adjust how much you need to spend and save money when it comes to crypto taxes.

These are ways of making use of limits and guidelines that are already present, including for both capital gains tax and income tax, both of which apply to cryptocurrencies.

To reduce your crypto tax bill, consider the following: Make Use Of Capital Gains Tax Allowance

Trading crypto may make you subject to capital gains tax in the UK, and this is one of the most common forms of crypto taxes that people have to pay. While this tax cannot be avoided when it comes to assets, including cryptocurrency, it does not have to be so expensive, and there is a tax-free allowance that everyone is entitled to that you can make use of.

Every individual in the UK does not have to pay capital gains tax on assets less than £12,300. This means you have over £12,000 of tax-free crypto every year that can be used to reduce your tax liability.

It is advised for you to make use of this allowance on capital gains taxes every year if you do pay it because it cannot be carried over into the next financial year: Make Use Of Losses

While no one wants to make a loss on their assets, there are some occasions where it may be best to balance your current profits and sell some tokens at a loss. This is known as tax-loss harvesting, and it can be beneficial to those looking to reduce crypto tax.

This is especially useful if you are just over the capital gains tax allowance and have to pay capital gains tax this financial year.

In this situation, it may be wise to sell some of your assets, including cryptocurrencies, at a loss as gains and losses made in the same financial year need to offset capital gains. This offset can reduce the amount of capital gains tax that is needed to be paid at the end of the financial year.

All losses need to be registered with the HMRC within four years from the end of that financial period. Certain costs associated with buying and selling can be deducted when it comes to working out your crypto capital gains tax. These fees include the transfer fee, exchange fee, gas fee, fee for professional services such as lawyers, and any accounting method related to the buying and selling of crypto.

All of these can be used to reduce the offset capital gains that you have to pay crypto taxes on and can help you save more money. Tax-loss harvesting is a secure method and something that is done across the board with all forms of assets, and it can also apply to crypto tax liability: Transfer Assets To Spouse or Civil Partner

The transferring of business income or trading profits is currently exempt from the capital gains tax, including those done in cryptocurrencies.

This can be a great way to increase total tax savings by making use of both parties' annual CGT allowance and securing less tax on your current crypto income. Transferring your assets to your spouse or civil partner allows you to make use of both your annual allowances for capital asset amounts as well as meet your tax obligations without saying goodbye to the majority of your profits.

This will work if you maintain the capital gains tax rates for both accounts: Claim Losses For Defunct Coins

There are two categories of crypto that can be considered part of capital losses and contribute to a reduction of the current tax rate. One of these is known as shitcoins which are cryptocurrencies with little to no value. Defunct coins, on the other hand, are currencies that are no longer in existence.

The nature of crypto assets means that there is an abundance of short-term capital gains, and some crypto tax software can go out of fashion or have no investment at the end of the financial year. These do not have to offset future gains, as much like tax-loss harvesting, there is a tax strategy that allows you to claim losses for any crypto income that is no longer profitable.

This means that if you find yourself in a situation with an abundance of capital losses, you cannot avoid paying crypto taxes overall, but here is a strategy that any tax professional will recommend ensuring these losses do not affect any of the other long-term capital gains you have generated so far.

You can claim the loss on these gains by filling out a negligible loss claim. This will make it look as if these now-defunct or low-value cryptocurrencies were disposed of and re-purchased at the price you have listed in your claim. This is essentially a huge write-off for crypto investors, using the legal tax-loss harvesting method that prevents you from being tied to an illiquid asset.

When filing a claim on these losses, you must offer the name of the crypto asset and the amount that should be considered as disposed of, as well as the date of the disposal. Once this claim has been filed, this capital loss can offset capital gains once HMRC has been informed.

If you are going to be using the tax-loss harvesting method to reduce crypto taxes, you can file both claims to HMRC at the same time: Contribute To A Pension

Making a pension contribution when you have net relevant earnings can be a way to reduce the tax on capital gains from 20% to 10%, which will dramatically reduce how much you need to pay on crypto.

This works on reducing how much you need to pay capital gains as tax contributions extend an individual's tax brackets, increasing the upper limit based on the gross contribution paid.

For example, an individual that has a gross contribution to a pension of £10,000 can increase the payable tax limit from £46,350 to £56,350.

This means that if your capital gains are within the extended personal allowance, after adding it to any other taxable income within the same financial period, your capital gains liability can increase from 10% to 20%, which can make a significant difference to your overall crypto taxes: Invest In An Enterprise Investment Scheme (EIS)

Another effective way of reducing the amount of taxes you need to pay on cryptocurrency is to invest in an Enterprise Investment Scheme. Any assets that are made on investments to an EIS and are held for three to four years will be free from capital gains taxes.

If these shares are disposed of at a loss, this is still an effective tax strategy for reducing how much you need to pay on crypto because you can set the loss value to less than the income tax relief, which will be given against your total yearly income. This includes any share's disposal across this yearly income, and this can be done instead of setting these losses against a capital gain.

The tax rates for a capital gain can be deferred when that capital gain is invested in a share of an EIS. This gain can come from the disposal of any kind of asset, including crypto, as long as the investment has been made within a period of one year to three years from when it first arose.

Using this tax strategy means that instead of worrying about how to pay tax on Bitcoin profits, for example, you can defer it by investing in a qualifying EIS share.

These EIS shares can be held onto for any duration of time, but it is important to note that you will be paid the deferred capital gain whenever shares are disposed of or when the EIS deems this so. This is not one of the most solid tax breaks you can consider when it comes to crypto, but it can be an effective thing for crypto investors to consider if they are looking to reduce their tax rate, When using this taxable event, you should be aware that there is an element of risk in investing in EIS schemes, and this is more than any other traditional stocks and shares.


Trading, selling, and investing in crypto is a taxable event in the UK. These assets are subject to both capital gains and income tax, depending on the limits and how much is being used by an individual.

Whether you are in a low-income year or simply want to hold onto more of your hard-earned profits, it is possible to reduce the amount of tax you have to pay on crypto legally. Using the current allowances as well as other movements, it is possible to reduce the amount of tax you need to pay on crypto.

It is a good idea to consult a tax professional when working with crypto and trying to hold onto your money, as they can offer ongoing support. Likewise, staying informed of what is happening in the crypto field is a great way to forecast your finances and determine what the best steps for you will be.