Author: FinTax
Introduction
According to statistics, the UK HM Revenue and Customs (HMRC) sent warning letters to approximately 65,000 individuals suspected of evading cryptocurrency taxes in the 2024-2025 tax year, more than doubling the number from last year. HMRC stated that it will utilize data from cryptocurrency service providers to track tax evasion and will obtain more detailed user transaction information based on the OECD Cryptoasset Reporting Framework starting in 2026. This initiative reflects the increasingly stringent tax regulation and enforcement trends in the UK regarding cryptocurrency assets. In addition to sending reminder letters, HMRC also updated a series of detailed cryptocurrency tax guidelines in the first half of 2025, providing tax guidance for individuals and companies holding or disposing of cryptocurrency assets. Individuals earning cryptocurrency through work or activities such as mining, staking, lending, or liquidity pool rewards are subject to income tax, and capital gains tax must be paid when selling, exchanging, or gifting cryptocurrency. Companies are required to pay corporation tax on their profits and gains.
This article aims to systematically outline the UK's cryptocurrency asset regulation and tax system to provide tax references for cryptocurrency investors and industry practitioners.
1. Definition and Classification of Cryptocurrency Assets in the UK
The UK revised the definition of cryptocurrency assets in the 2000 Financial Services and Markets Act in 2023, defining them as any digital representation of value or contractual rights that is secured by cryptography, can be electronically transferred, stored, or traded, and utilizes technology that supports the recording or storage of data (which may include distributed ledger technology).
On April 29, 2025, the UK Treasury published the legislative draft "2000 Financial Services and Markets Act (Regulated Activities and Miscellaneous Provisions) (Cryptoassets) Regulations 2025," which further specifies the categories of regulated cryptocurrency assets and regulated cryptocurrency activities. According to this regulation, qualified cryptocurrency assets in the regulated category refer to interchangeable and transferable cryptocurrency assets, excluding electronic money, fiat currency, central bank digital currency, and cryptocurrency assets that cannot be transferred or sold for money or other cryptocurrency assets except through redemption by the issuer, or that can only be used to purchase goods or services from the issuer or a limited network of service providers. Among them, qualified stablecoins refer to cryptocurrency assets that seek or claim to maintain a stable value by holding or arranging to hold fiat currency or fiat currency with other assets, which does not include cryptocurrency assets representing a right to claim repayment of funds received in deposit form. Regulated cryptocurrency activities include issuing stablecoins, arranging qualified cryptocurrency asset transactions, staking qualified cryptocurrency assets, and operating qualified cryptocurrency asset platforms.
2. Evolution of the UK's Cryptocurrency Asset Regulatory Framework
Since 2022, the UK government has focused on the emerging field of cryptocurrency assets, classifying them as regulated financial services, developing regulatory drafts and applicable guidelines, and gradually integrating cryptocurrency assets into the mainstream financial regulatory and tax system.
In April 2022, the UK government committed to introducing a new regulatory framework for cryptocurrency assets to address the risks and opportunities they present. In October 2023, the UK Treasury announced detailed proposals for establishing a UK financial services regulatory framework for cryptocurrency assets, including stablecoins. On November 21, 2024, the government confirmed it would continue to implement this framework, which is broadly consistent with the previously announced proposals.
On April 29, 2025, the UK Treasury published the legislative draft "2000 Financial Services and Markets Act (Regulated Activities and Miscellaneous Provisions) (Cryptoassets) Regulations 2025," accompanied by a policy statement. To ensure legislative consistency, the draft simultaneously amends the 2005 Financial Promotion Order to ensure that changes to the definition of cryptocurrency assets in the regulations can apply to the Financial Promotion Order. It also simultaneously amends other secondary legislation, such as the 2011 Electronic Money Regulations, and repeals the temporary provisions in the 2017 Anti-Money Laundering Regulations that allowed cryptocurrency companies registered with the UK Financial Conduct Authority to approve their own financial promotion activities.
For cryptocurrency intermediaries, the UK Financial Conduct Authority (FCA) stated that its regulatory approach will be based on international frameworks. Its goal is to regulate intermediaries according to the principle of "same risk, same regulation," while also considering the characteristics of the broader cryptocurrency market. In May 2025, the FCA prioritized the improvement of the cryptocurrency asset regime in its work plan for 2025-2026, and on September 17, 2025, it published a consultation document on minimum standards aimed at allowing rapidly growing cryptocurrency companies to participate in international competition, suggesting the abandonment of four principles for cryptocurrency trading platforms.
In addition, HMRC updated a series of cryptocurrency tax guidelines in the first half of 2025, providing detailed guidance on relevant tax arrangements.
3. Overview of the UK's Cryptocurrency Tax System
At the legislative level, HMRC considers cryptocurrency assets to be intangible assets rather than currency or money. Therefore, taxes are levied based on existing property and capital gains principles, rather than through foreign exchange or currency exchange rules. The UK has incorporated cryptocurrency taxation into its existing system, focusing on asset ownership and disposal, with a dual structure of income tax and capital gains tax for individuals. Meanwhile, UK cryptocurrency taxation emphasizes substantive economic benefits, adopts a technology-neutral principle, and is broadly applicable, avoiding references to specific cryptocurrency technologies or networks.
At the enforcement level, UK cryptocurrency taxation relies on individual responsibility and self-reporting. However, starting in 2026, the UK will implement the OECD Cryptoasset Reporting Framework, requiring cryptocurrency service providers to report user data directly to HMRC, making individual cryptocurrency taxation more transparent.
In the first half of 2025, HMRC updated a series of cryptocurrency tax guidelines for individuals and companies, with specific rules as follows:
3.1 Tax Rules for Individuals
At the legislative level, the tax rules for individuals holding and disposing of cryptocurrency assets mainly involve tax type differentiation and tax reporting rules; at the enforcement level, HMRC's regulation of individual cryptocurrency taxation has a trend of being stricter.
3.1.1 Types of Taxes Involved
Individual cryptocurrency taxation mainly involves three types of taxes: income tax, capital gains tax, and inheritance tax.
(1) Income Tax
If an individual earns cryptocurrency through work or activities such as mining, staking, lending, or liquidity pool rewards, it may trigger income tax and national insurance contributions. This includes any income earned from decentralized finance (DeFi). Cryptocurrency obtained through mining, staking, or lending, if not traded, is considered "other taxable income."
Regarding tax-free allowances, individuals can earn up to £1,000 in trading and miscellaneous income tax-free each year, and income from cryptocurrency counts towards this allowance. Individuals with total miscellaneous income between £1,000 and £2,500 must contact HMRC, and those exceeding £2,500 must register for self-assessment.
Individuals need to check whether their cryptocurrency is classified as readily convertible assets, with cryptocurrencies like Bitcoin falling into this category:
- If the income is from readily convertible assets, UK employers must first pay the employee's income tax and national insurance contributions through PAYE before paying the employee's salary. If the employer pays the salary in cryptocurrency, they will estimate the value of the cryptocurrency and pay income tax and national insurance contributions based on that estimate, then deduct that tax from the current salary. Employees are responsible for checking and ensuring that the correct tax is paid to HMRC.
- If the income is not from readily convertible assets, employees should ask their employer whether income tax was paid through the PAYE system; if not, they need to pay it themselves. To pay their own income tax, they must fill out a self-assessment tax return in pounds.
If the cryptocurrency that has already been taxed is later sold, capital gains tax should be calculated normally based on any increase in the value of the cryptocurrency after receiving it.
(2) Capital Gains Tax
For most individuals holding cryptocurrency as an investment, capital gains tax must be paid when disposing of (disposing) assets. Disposal actions may include selling cryptocurrency for fiat currency, exchanging one cryptocurrency for another, using cryptocurrency to purchase goods or services, or gifting cryptocurrency (except to a spouse or civil partner).
Regarding tax-free allowances, the annual capital gains tax allowance for most individuals has been reduced, and any total gains exceeding this allowance must be reported. The annual capital gains tax allowance for the 2024-2025 tax year has been reduced to £3,000 and will remain at this level for the 2025-2026 tax year.
Regarding tax rates, the capital gains tax rate changed on October 30, 2024. Before October 30, 2024, the basic rate was 10%, and the higher rate was 20%. From October 30, 2024, the basic rate will be 18%, and the higher rate will be 24%.
When calculating personal gains, gains typically refer to the difference between the purchase price and the sale price of the asset. However, in cases where cryptocurrency is transferred between related parties, fair value must be used to calculate gains. When calculating gains, allowable costs can be deducted, and capital losses from other assets can be used to reduce gains when reported to HMRC. If income tax has already been paid on any portion of the cryptocurrency asset value, capital gains tax does not need to be paid on that portion.
For gains calculated from selling cryptocurrency more than 30 days after purchase, pooling rules apply, grouping each type of cryptocurrency owned into "pools" and calculating the average cost of each type of cryptocurrency. Each time cryptocurrency is purchased or received, the amount paid must be added to the corresponding pool, and when disposing of cryptocurrency, the proportionate pooled cost and other allowable costs must be deducted. Allowable costs include transaction fees, advertising for buyers or sellers, drafting transaction contracts, valuations for calculating transaction gains, and a portion of the pooled cost of cryptocurrency.
For purchases of the same type of cryptocurrency on the same day or within 30 days of selling that type of cryptocurrency, the costs of purchasing cryptocurrency are not pooled. In this case, the cost calculation rules are the same as those for calculating stock costs, applying the "bed and breakfast" rule, where the disposal gain or loss is the difference between the net disposal proceeds and the subsequent acquisition cost.
For each cryptocurrency pool, separate records must be kept for each transaction, including the type of cryptocurrency, disposal date, quantity of disposed cryptocurrency, remaining quantity of cryptocurrency, the pound value of the cryptocurrency, bank statements, and pooled costs before and after disposal.
(3) Inheritance Tax
Cryptocurrency assets are considered part of the estate for inheritance tax purposes, and the location of the cryptocurrency is typically determined by the tax residence of the beneficiary.
3.1.2 Individual Tax Reporting Rules
In May 2025, HMRC issued new guidelines stating that individuals must provide personal information to cryptocurrency service providers before the reporting rules take effect on January 1, 2026. This rule applies to all service providers that allow the purchase, sale, transfer, or exchange of cryptocurrency assets, including those headquartered outside the UK but providing services to UK users, and requires individuals to maintain detailed records including cryptocurrency type, acquisition date, acquisition cost, disposal date, disposal proceeds, fees, wallet addresses, etc.
Starting from January 1, 2026, the UK will introduce reporting rules for cryptocurrency service providers based on the OECD Cryptoasset Reporting Framework, requiring these providers to collect and report user and transaction data to HM Revenue and Customs (HMRC). The first report must be submitted to HMRC by May 31, 2027, covering the period from January 1, 2026, to December 31, 2026.
3.1.3 Trends in Individual Tax Regulation
In the 2024-2025 tax year, HMRC sent out up to 65,000 reminder letters to cryptocurrency investors to urge them to pay any unpaid taxes before initiating formal investigations. This number has more than doubled from 28,000 letters sent in the previous year, indicating that UK tax authorities are intensifying their regulatory efforts regarding cryptocurrency taxation.
3.2 Tax Rules for Corporations
Companies are required to pay corporation tax on their profits and gains. The tax obligations of partnerships or limited partnerships pass through to their members, and member companies must pay corporation tax on their share of the profits and gains from the partnership. HMRC does not consider any current type of cryptocurrency to be currency, and any corporation tax laws related solely to currency do not apply to cryptocurrency assets.
3.2.1 Applicability of Tax Rules
(1) Section 5 of the 2009 Corporation Tax Act - Loan Relationship Rules
Merely acquiring cryptocurrency does not involve a loan relationship and is not subject to loan relationship rules. If cryptocurrency has been provided as collateral for a loan of ordinary money, a loan relationship exists, and the loan relationship rules apply regardless of whether the company is the debtor or the creditor.
(2) Section 8 of the 2009 Corporation Tax Act - Intangible Fixed Asset Rules
If cryptocurrency is classified as an "intangible asset" for accounting purposes and is used for ongoing use, companies accounting for cryptocurrency as intangible assets may be subject to corporation tax under the rules for intangible fixed assets.
3.2.2 Circumstances Requiring Corporation Tax Payment
If a company holds cryptocurrency as an investment, it is obligated to pay corporation tax on any gains realized upon disposing of the cryptocurrency. If a sole trader holds cryptocurrency as an investment, they are obligated to pay capital gains tax on any gains realized. If a partnership or limited partnership holds cryptocurrency as an investment, its members are obligated to pay corporation tax (if a company) or capital gains tax (if an individual) on any gains realized.
If a company gifts cryptocurrency to other companies not belonging to the same group, or gifts it to individuals or other entities, the disposing company must calculate the fair value of the gifted cryptocurrency and use this to calculate taxable gains. The recipient is deemed to have acquired the cryptocurrency at its fair value at the time of the gift.
If a company retains ownership of the gains from the cryptocurrency throughout the transaction process, no disposal occurs, such as moving cryptocurrency between public addresses controlled by the company. Using mixers or similar services to receive the same type of cryptocurrency that the company put into the transaction does not constitute a disposal. However, if a company puts cryptocurrency A into a transaction and receives cryptocurrency B, this constitutes a disposal.
If a taxpayer donates cryptocurrency to a charity, they are not required to pay corporation tax on any gains realized unless they made a "tainted donation" or sold the cryptocurrency to the charity for a price exceeding the acquisition cost, thereby realizing a gain.
3.2.3 Calculation of Taxable Gains for Corporation Tax
The calculation of taxable gains for corporation tax applies pooling rules (similar to individual capital gains tax), but with the following exceptions:
If a company acquires the same type of cryptocurrency on the same day it disposes of that type of cryptocurrency, the disposal will match the cryptocurrency acquired on the same day, taking precedence over any cryptocurrency held in existing pools.
If a company acquires cryptocurrency that would have been created or added to a pool but disposes of similar cryptocurrency within 10 days, that disposal will match the acquisition made within the previous 9 days, taking precedence over any cryptocurrency held in existing pools. If multiple acquisitions occur during this period, the "first in, first out" principle applies.
4. Outlook for the UK's Cryptocurrency Tax System
The current UK tax rules treat cryptocurrency assets equally with other assets, imposing equal taxes on economic value without distinction. This reflects the UK government's general recognition of cryptocurrency assets, particularly its focus on the economic substance of cryptocurrency assets. In this regard, cryptocurrency investors should clearly understand the asset nature of cryptocurrency, be aware of cryptocurrency tax rules, clarify potential tax obligations, and enhance self-review and proactive disclosure of cryptocurrency tax information to avoid tax evasion.
Recently, the reminder letters sent by HMRC have indicated its strict regulatory stance on cryptocurrency taxation. As HMRC obtains more data, it may further intensify its tax collection efforts regarding cryptocurrency investors, making it increasingly difficult for those who have not reported capital gains from cryptocurrency to evade tax authority scrutiny, and various offshore tax evasion activities will also become a focus of tax authorities.
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