Do I Pay Capital Gains Tax on Cryptocurrency?

# Do I Pay Capital Gains Tax on Cryptocurrency?

If you've been buying, selling, or spending cryptocurrency like Bitcoin or Ethereum, you probably need to pay Capital Gains Tax on any profits you make. HMRC treats cryptoassets (also known as cryptocurrency) like other assets such as shares or property, and you'll owe tax if your total gains exceed the annual tax-free allowance.

When you need to pay Capital Gains Tax

You may need to pay Capital Gains Tax when you 'dispose' of cryptoassets. A disposal happens when you:

• Sell them for pounds sterling or another currency
• Exchange them for a different type of cryptoasset (for example, swapping Bitcoin for Ethereum)
• Use them to pay for goods or services
• Give them away to another person (unless it's a gift to your spouse, civil partner, or a charity)

You must work out your total gains from all disposals of cryptoassets and other assets during the tax year (which runs from 6 April to 5 April). If your total gain is above the Capital Gains Tax tax-free allowance for the year, you must report the gain to HMRC and pay tax on the amount above the allowance.

You may also need to pay Income Tax if you receive cryptoassets in certain situations, such as from employment or mining activities.

How to calculate your gain

You need to calculate your gain separately for each transaction. Your gain is normally the difference between what you paid for the cryptoasset and what you sold it for.

However, you must use market value instead of the actual price in certain situations. For example, when cryptoassets have been transferred between 'connected persons' (such as business partners or close family members).

When working out your gain, you can:

• Deduct allowable costs (explained below)
• Use capital losses from other assets to reduce your gain (you must report these losses to HMRC first)

If you've already paid Income Tax on any part of your cryptoasset's value (for example, if you received tokens as employment earnings), you won't pay Capital Gains Tax on that portion. You'll only pay it on any gain you make after receiving them.

Pooling: working out the cost of your tokens

HMRC requires you to use a method called 'pooling' to work out the cost of your cryptoassets. This means you must group each type of token you own into separate 'pools' and calculate an average cost.

Here's how pooling works:

• Each time you buy or receive tokens, add the amount you paid to the pool for that type of token
• Each time you dispose of tokens, deduct an equivalent proportion of the pooled cost

Example:

You buy 100 token XY for £2 each (total cost £200). Later, you buy 300 token XY for £1 each (total cost £300). You now have 400 token XY costing £500 in total, giving an average cost of £1.25 per token.

If you sell 200 token XY, the cost for your tax calculation is £250 (£1.25 × 200). You deduct this from what you sold the tokens for to work out your gain.

When pooling doesn't apply

You cannot use pooling if you buy tokens:

• On the same day you sell tokens of the same type
• Within 30 days of selling tokens of the same type

In these cases, you must use the same rules that apply to shares. These are more complex and are explained in HMRC's Self Assessment helpsheet HS284.

Allowable costs you can deduct

Allowable costs are expenses you can deduct from your gain to reduce your tax bill. These include:

• Transaction fees charged by exchanges
• Advertising costs for finding a buyer or seller
• Professional costs for drawing up a contract
• Valuation costs to help you work out your gain
• A proportion of the pooled costs of your tokens

You cannot deduct:

• Costs you've already deducted against Income Tax profits
• Costs of mining activities (such as computer equipment or electricity)

Records you must keep

HMRC may carry out a compliance check, so you must keep detailed records. For each pool of tokens, keep separate records for each transaction showing:

• The type of tokens
• The date you disposed of them
• The number of tokens you disposed of
• The number of tokens you have left
• The value of the tokens in pounds sterling
• Bank statements
• Pooled costs before and after you disposed of them

You may also want to keep wallet addresses and other supporting information.

Many cryptoasset exchanges provide transaction reports. While these can be helpful, they are not tax calculations and will not keep track of your pooled costs. You must keep your own records of all transactions.

How to report and pay

You can report your Capital Gains Tax on cryptoassets by either:

• Completing a Self Assessment tax return at the end of the tax year
• Using HMRC's Capital Gains Tax real time service

From the 2024/25 tax year onwards, Self Assessment returns include a dedicated cryptoasset section. You must complete all figures in pounds sterling.

If you need to disclose unpaid tax from earlier tax years, you can use HMRC's Cryptoasset Disclosure Service.

Sources

• Check if you need to pay tax when you sell cryptoassets

This article provides general guidance based on current HMRC rules. For advice specific to your situation, speak to your accountant.