Understanding crypto assets and how they are taxed in the UK

In recent years, crypto assets (crypto) have gained popularity and attention. As digital assets like Bitcoin, Ethereum and others become more mainstream, it is important to understand how they are viewed by HMRC and the UK tax implications associated with them.

In the UK, crypto such as Bitcoin, Ethereum and non-fungible tokens (NFTs) are treated as property not currency. Transactions in crypto – including trading one token for another token of a different kind, e.g. Bitcoin for Ethereum, converting them to currency like pounds sterling or even using crypto to pay for goods and services – are treated as disposals of the crypto which could give rise to a charge under the UK’s capital gains tax (CGT) rules. The annual tax-free exemption for CGT is now just £3,000, significantly reducing the threshold for making tax-free disposals.

Even if crypto is held via non-UK crypto exchanges, this does not remove the need to consider the UK taxability of gains that may be generated from such crypto transactions.

Income tax vs CGT – when crypto assets can give rise to taxable income

While most individuals pay CGT on their crypto profits, some crypto-related activity may be taxed as income in the UK. This includes crypto generated through mining, ‘staking’ rewards or receiving crypto in exchange for goods or services provided.

In such cases, the fair market value of the crypto received may be subject to income tax in the UK and potentially also national insurance contributions (NICs). In more complex situations, including involving decentralised finance, the distinction between capital and income can become unclear. For example, yield farming or liquidity provision might involve multiple taxable events, with both income and capital elements.

Inheritance tax implications for crypto assets

As some crypto, such has Bitcoin, has hit record high values in recent months, it may in some cases form a significant part of the estate of individuals who are liable to UK inheritance tax. Crypto may present unique challenges around custody and access after death. Ensuring that this valuable asset is accessible for executors of estates is important. To fulfil their obligations, executors must collect assets for the beneficiaries and pay any UK inheritance tax due.

To this end, anyone affected should review their will as part of their wider estate planning, to ensure that such assets have been considered. People should also understand the tax implications of any lifetime transfer of crypto.

HMRC enforcement and new reporting rules

HMRC’s focus on crypto is intensifying. From 1 January 2026, reportable Crypto Service Providers will be legally required to automatically exchange data and transactions to participating tax authorities across the world. This will provide additional information to HMRC under the international Cryptoasset Reporting Framework.

This aligns with HMRC’s broader use of third-party data (including from crypto exchanges) and recent compliance campaigns targeting undeclared crypto gains. Private clients with historic crypto activity, particularly where no disclosures have been made on UK self-assessment tax returns, should ensure they are fully compliant. HMRC’s digital disclosure service (DDS) offers a route for voluntary disclosure, which can help reduce penalties and late payment interest.

How Moore Kingston Smith can help

Whether you are concerned about past crypto activity or future crypto planning, you should contact us.

If you have been involved in historic crypto activity and are unsure whether you need to bring your tax affairs up to date, we can help reduce penalties and late payment interest. We have a dedicated team that can work with you to use the HMRC DDS to make a voluntary disclosure.

If you invest in crypto as a part of your overall investment portfolio, we can advise on the tax implications. As regulation and tax rules evolve, it is increasingly important to review crypto holdings alongside other asset classes in annual tax planning reviews.

Please get in touch with us to see how we can help.