How HMRC Taxes Crypto

What HMRC counts as a disposal

HMRC is not vague on what counts as a taxable disposal. HMRC is absolutely specific when it comes to crypto. A disposal for HMRC crypto CGT purposes includes selling tokens for money, exchanging tokens for a different type of token, using tokens to pay for goods or services, and giving away tokens to another person – unless the gift is to a spouse or civil partner.

This poses a thorny challenge for anyone handling tokens. Let's say you used Bitcoin to pay for a pizza. To HMRC, that's the same as selling the Bitcoin for pounds. You may need to calculate the pound sterling gain, which is the Bitcoin price at that moment minus its acquisition cost in pounds. Then there's a matching problem: which individual Bitcoin from your holding did you spend, for tax purposes?

How HMRC works out the gain

Disposal matching rules are complex.

1. HM Revenue & Customs treats different purchase events as a single acquisition, and exchanges for other assets (another coin, say) as a single disposal. The Taxation of Chargeable Gains Act 1992 includes detailed matching rules that could leave some crypto holders unsure how to add it up.
2. But in addition, acquisitions and disposals on the same day are again lumped together. Acquisitions are then matched against disposals, with any excess tokens remaining that may not be matched yet treated individually later under the 30-day rule.
3. The 30-day rule leverages some extra stringency. It says that any crypto acquired "within 30 days of disposal can be brought forward and matched to that disposal. Matches apply to acquisitions within 30 days.

The allowance that can wipe out small gains

This is one section that could contain some hidden pitfalls if you turn up here expecting an easy win. After all, hasn't everyone been talking about CGT allowance shrinking? But it's a bit more complicated than that.

To start, as of 2023/2024 tax year, the allowance is £6,000. That's the easy-to-remember quote. But since then, in its Budget announcements, the Treasury has:

• Removed 50% of the allowance, leaving £3,000 for 2025/2026
• Kept it at £3,000 for 2026/2027

So don't guess on the allowance if you aren't completely certain. According to HMRC, the Budget sets the annual exempt amount. It should be checked on GOV.UK each year to stay current with the figure. The Taxation of Chargeable Gains Act 1992 shows the annual exempt amount is £3,000. Go to GOV.UK if you need to check the allowance..

Income crypto, and what to keep

Every cryptoasset transaction records should be kept, according to HMRC. This includes:

• the kind of crypto asset,
• the purchase or sale day,
• the amount in pounds,
• the number of cryptocurrency holdings, and
• your wallet address.

The bottom line for UK taxpayers who swap, spend, or gift cryptocurrency is complicated.

Keep that legal context in mind. If you need to dig deeper, look up those web links.