Cryptocurrency Tax Guide UK: HMRC Rules for 2025/26

Cryptocurrency is not a tax-free Wild West. HMRC has been steadily tightening its grip on crypto assets, and the rules for the 2025/26 tax year are clear: if you're buying, selling, swapping, staking, or mining crypto, there are tax consequences. This guide covers what you need to know to stay on the right side of HMRC.

How HMRC Views Cryptocurrency

HMRC doesn't classify cryptocurrency as money. It treats crypto assets (Bitcoin, Ethereum, stablecoins, NFTs, and everything else) as property for tax purposes. That means most transactions involving crypto are subject to Capital Gains Tax, not Income Tax.

However, some activities cross the line into income. Staking rewards, mining income, and airdrops received for services can all be taxed as income rather than capital gains. The distinction matters because the tax rates and allowances are different.

Capital Gains Tax on Crypto Disposals

You trigger a CGT event every time you dispose of a crypto asset. A disposal includes:

• Selling crypto for pounds or any other fiat currency
• Swapping one cryptocurrency for another (yes, even crypto-to-crypto trades)
• Using crypto to pay for goods or services
• Giving crypto to someone who isn't your spouse or civil partner

You do not trigger a CGT event when you:

• Buy crypto with fiat currency (this is an acquisition, not a disposal)
• Transfer crypto between your own wallets
• Give crypto to your spouse or civil partner
• Donate crypto to a registered charity

The £3,000 Annual Exemption

For the 2025/26 tax year, the Capital Gains Tax annual exempt amount is £3,000. This means the first £3,000 of your total capital gains across all assets (not just crypto) is tax-free.

This is a significant reduction from the £12,300 allowance that applied until April 2023. Many people who previously had enough headroom to trade crypto without a tax bill now find themselves above the threshold.

CGT Rates for Crypto

Capital gains on crypto above the annual exemption are taxed at:

• 18% for basic rate taxpayers
• 24% for higher and additional rate taxpayers

These are the rates that apply from 30 October 2024 onwards, following the changes announced in the Autumn Budget 2024. Note that these rates apply to the gain, not the sale proceeds.

Pooling Rules: How to Calculate Your Gain

HMRC uses a pooling method to calculate your cost basis. This is called Section 104 pooling, and it works like this:

You maintain a single pool for each type of crypto asset. Every time you buy Bitcoin, for example, the cost is added to your Bitcoin pool. The pool tracks the total number of tokens and the total allowable cost. When you sell, you calculate the average cost per token from the pool and use that to work out your gain.

The Same-Day and Bed-and-Breakfast Rules

Before the Section 104 pool is used, two anti-avoidance rules apply:

1. Same-day rule: If you sell and buy the same crypto on the same day, the acquisition cost used is the cost of the tokens bought that day, not the pool average.

2. 30-day rule (bed and breakfasting): If you sell crypto and repurchase the same asset within 30 days, the cost of the repurchased tokens is matched to the disposal. This prevents you from selling to crystallise a loss and immediately buying back.

These rules apply in order: same-day first, then 30-day, then the Section 104 pool.

Practical Example

Say your Bitcoin Section 104 pool contains 2 BTC at a total cost of £40,000 (average cost £20,000 per BTC). You sell 1 BTC for £35,000. Your gain would be £35,000 minus £20,000 = £15,000. After your £3,000 annual exemption, you'd pay CGT on £12,000.

But if you bought 0.5 BTC earlier that same day for £18,000, the same-day rule would match that 0.5 BTC to part of your disposal, changing the calculation.

DeFi Staking and Lending as Income

If you earn rewards from staking cryptocurrency or from lending it through DeFi protocols, HMRC is likely to treat these as income rather than capital gains. The reasoning is straightforward: you're receiving new tokens as a return for providing a service or making your assets available.

Staking rewards are taxed as miscellaneous income. You report them at their market value at the time you receive them. This becomes the acquisition cost for those tokens if you later sell them, so you're not double-taxed.

The same logic applies to:

• Yield farming rewards
• Liquidity provider fees
• Interest earned on crypto lending platforms

The Income Tax rates for 2025/26 are 20% (basic rate), 40% (higher rate), and 45% (additional rate). If your staking income, combined with your other income, pushes you into a higher bracket, the marginal rate applies.

Mining: Trading or Hobby?

HMRC's view on crypto mining depends on the scale and organisation of the activity.

If you're mining as a business, with dedicated hardware, significant electricity costs, and an intention to profit, HMRC treats the mined tokens as trading income. You report this on the self-employment pages of your tax return, pay Income Tax and National Insurance on the profits, and the market value of the tokens when mined becomes your acquisition cost.

If mining is more of a hobby or very small scale, HMRC may treat the mined tokens as miscellaneous income instead. The distinction matters because trading income carries National Insurance obligations, while miscellaneous income doesn't.

In practice, if you've invested thousands in mining rigs and are running them continuously, HMRC will likely consider it a trade.

Record Keeping Requirements

HMRC requires you to keep detailed records of every crypto transaction. This includes:

• The type of crypto asset
• The date of each transaction
• Whether you bought, sold, swapped, gifted, or received the tokens
• The number of tokens involved
• The value in pounds sterling at the time of the transaction
• The cumulative total of tokens in each pool
• Bank statements and wallet addresses involved
• Any fees associated with the transaction

You need to keep these records for at least five years after the 31 January Self Assessment deadline for the relevant tax year.

Given that many people have hundreds or thousands of transactions across multiple exchanges and wallets, maintaining these records manually is impractical. This is one area where dedicated software makes a real difference.

HMRC Nudge Letters

Since 2019, HMRC has been sending nudge letters to people it suspects may have unreported crypto income or gains. These letters are generated using data HMRC obtains from crypto exchanges, which are required to share customer information under the OECD's Crypto-Asset Reporting Framework (CARF).

A nudge letter isn't an investigation. It's HMRC prompting you to check whether your tax returns are accurate. But ignoring one is a mistake. If HMRC has data suggesting you've made disposals, and you haven't reported them, a nudge letter is your opportunity to put things right voluntarily, which typically results in lower penalties than if HMRC has to chase you.

If you receive a nudge letter, review your transaction history across all exchanges and wallets, calculate any unreported gains or income, and consider making a voluntary disclosure if needed.

Airdrops and Hard Forks

Airdrops are treated differently depending on why you received them:

• Airdrops received for nothing (no action on your part): These aren't taxed as income when received. Their acquisition cost is zero, so the full value is taxable as a capital gain when you dispose of them.
• Airdrops received for a service (such as promoting a project): These are taxed as income at the market value when received.

For hard forks, HMRC treats the new tokens as having a zero acquisition cost if you didn't do anything to receive them. The original tokens keep their existing Section 104 pool cost.

NFTs Follow the Same Rules

Non-fungible tokens are treated identically to other crypto assets for tax purposes. Buying, selling, and swapping NFTs are disposals subject to CGT. If you create and sell NFTs as a business, the profits may be treated as trading income instead.

Getting Your Crypto Tax Right

The combination of pooling rules, same-day matching, income versus capital gains distinctions, and hundreds of transactions across multiple platforms makes crypto tax genuinely difficult to get right. Accounted connects to major crypto exchanges and helps you track your Section 104 pools automatically. Penny, Accounted's AI bookkeeper, categorises your transactions and flags disposals that need reporting. Start your free trial today and take the pain out of crypto tax compliance.

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