With crypto adoption on the rise, understanding the UK's complex taxation framework for cryptocurrencies is essential. This guide delves into the tax obligations for crypto holders, including updates for 2025, and explores strategies to optimise your tax position.

Key Changes to Crypto Taxation in 2025

The UK's crypto tax landscape continues to evolve. Here are the significant updates for 2025:

Reduced Capital Gains Tax Allowance:

  • The tax-free allowance has dropped to £3,000, down from £12,300 two years prior.

  • Gains above this threshold are now taxed at 18% (basic rate) and 24% (higher/additional rate) post-October 30, 2024.

Heightened HMRC Scrutiny:

  • HMRC requires taxpayers to separately report crypto gains and losses.

  • Data-sharing agreements with exchanges and the introduction of the Crypto Asset Reporting Framework (CARF) enhance HMRC’s tracking capabilities.

Understanding Taxable Events

Crypto transactions fall under Capital Gains Tax (CGT) or Income Tax, depending on their nature. Here's how they are categorised:

Subject to Capital Gains Tax

  • Selling crypto for fiat (e.g., GBP).

  • Trading crypto (e.g., BTC to ETH).

  • Spending crypto on goods or services.

  • Gifting crypto (except to a spouse or civil partner).

Subject to Income Tax

  • Mining and staking rewards.

  • Airdrops received for services or promotional activities.

  • Crypto payments for goods/services.

Example:
Emma earns 0.5 ETH through staking, valued at £1,000. She must report this as income for the tax year.

Capital Gains Tax Explained

When disposing of crypto, you are taxed on the gain, calculated as:
Sale Price - Cost Basis = Gain (or Loss)

Tax Rates (Post-October 30, 2024)

  • 18% for taxpayers earning under £50,270.

  • 24% for those earning above £50,270.

Example:
Tom buys 1 BTC at £20,000 and sells it for £40,000. His taxable gain is £20,000. If his annual income is £60,000, he pays 24% tax, amounting to £4,800.

Offsetting Losses

  • Unlimited losses can offset gains within the same tax year.

  • Excess losses can be carried forward indefinitely.

Example:
Sophia incurs a £15,000 loss from ETH sales. She offsets a £20,000 BTC gain, reducing her taxable gain to £5,000.

Income Tax for Crypto Earnings

Crypto earned as income is taxed at the same rate as regular earnings:

  • 20% (basic rate) for incomes between £12,571–£50,270.

  • 40% (higher rate) for incomes up to £125,140.

  • 45% (additional rate) for incomes above £125,140.

Example:
Jacob earns £5,000 from staking and £50,000 in annual salary. He pays 40% on his crypto earnings, totalling £2,000.

Tax-Free Crypto Transactions

You won’t incur tax on the following activities:

  • Buying crypto with fiat.

  • HODLing crypto assets.

  • Transferring crypto between personal wallets.

  • Gifting crypto to a spouse or civil partner.

  • Donating crypto to a registered charity.

Optimising Your Tax Position

  1. Utilise Spousal Exemptions:
    Gift crypto to a lower-earning spouse to leverage their unused allowances.

  2. Strategic Disposal Timing:
    Delay disposals to the next financial year if it reduces your tax rate.

  3. Tax-Loss Harvesting:
    Sell underperforming assets to offset gains from profitable trades.

  4. Donate Crypto:
    Donating crypto avoids CGT and offers Income Tax relief.

Filing Deadlines and Reporting

  • Tax Year: April 6, 2023 – April 5, 2024.

  • Self-Assessment Deadline:

    • Online filing: January 31, 2025.

    • Paper filing: October 31, 2024.

Required Forms

  • SA108: Report capital gains and losses.

  • SA100: Declare crypto income.

The Future of Crypto Taxation

With increasing regulatory oversight and the implementation of CARF by 2026, accurate reporting will be more critical than ever. Staying informed and proactive in managing your crypto portfolio will help minimise your tax burden.