A Tax and Compliance Guide for Cryptocurrency Traders

Cryptocurrency tax rules have transformed dramatically over the past year to match a surge in interest and investment. 

As you might imagine, crypto creates some incredibly complex tax situations that HMRC is trying to get on top of.

So, if you’ve been putting off sorting your crypto taxes, now is the time to get serious. The government has made it clear that digital assets are firmly in their sights, and the consequences of getting it wrong are becoming more severe. 

This guide will walk you through everything you need to know about crypto tax, and how to stay compliant without paying more than necessary.

How HMRC Really Views Your Cryptocurrency

HMRC doesn’t consider cryptocurrency to be money or legal tender. Instead, they usually treat it as property, similar to shares or real estate. This affects how almost every crypto transaction gets taxed, and it’s the first thing you need to understand.

There are situations cryptocurrency is treated as income instead, though, which we’ll cover in a minute.

When you dispose of crypto – whether that’s selling it, trading it, spending it, or giving it away – HMRC sees this as disposing of an asset. 

If you’ve made a profit since you acquired it, you’ll typically face Capital Gains Tax (CGT). If you’ve made a loss, you can often use that to offset other gains. CGT applies to other assets, including houses (other than your main home), some antiques, art, shares, and so on. 

But here’s where it gets more complex. Not all crypto activities result in capital gains. Some generate income that gets taxed just like your salary or business profits. The key is understanding which bucket each of your activities falls into, because the tax treatment can be very different.

The distinction matters because CGT has different rates and allowances compared to Income Tax. Getting the classification wrong could mean you’re either underpaying (and facing penalties later) or overpaying (and missing out on legitimate tax savings).

When CGT Kicks In

Capital Gains Tax applies whenever you dispose of cryptocurrency and make a profit. The definition of “disposal” is broader than many people realise, and it catches out traders who think they’re only liable when they cash out to pounds. Here are some key activities that trigger CGT:

• Converting to fiat currency – Selling Bitcoin, Ethereum, or any crypto for pounds, dollars, or euros
• Crypto-to-crypto trading – Swapping one digital asset for another, including trading into stablecoins like USDC or USDT
• Purchasing goods and services – Using cryptocurrency to buy anything from a coffee to a Tesla
• Gifting to non-spouses – Sending crypto to friends, family members, or anyone other than your married partner or civil partner
• DeFi protocol interactions – Adding liquidity to pools, lending assets, or participating in yield farming where you lose beneficial ownership

As you can see, there are numerous scenarios where crypto is taxed. Just because it appears liquid and easy to move around doesn’t mean it is for tax purposes.

How to Calculate Your CGT Bill

You need to determine your cost basis (what you originally paid for the crypto, including fees), subtract this from your disposal proceeds (what you received when you disposed of it), and apply the correct tax rate to any profit.

HMRC uses specific rules for determining which coins you’ve sold when you hold multiple purchases of the same cryptocurrency at different prices. The share pooling method means you can’t cherry-pick which coins to sell – instead, you use an average cost across all your holdings of that particular crypto if you cash them all out at the same time. 

The tax rates for capital gains changed dramatically in October 2024, rising to 18% and 24% for basic and higher rate taxpayers respectively. Your tax band is determined by your total taxable income, including employment income, business profits, rental income, and any crypto income. 

You can make a certain amount of capital gains without paying tax. It was £12,300 just a few years ago, dropped to £6,000 for 2023/24, and is now just £3,000 for 2024/25. 

This means far more crypto traders will have taxable gains and need to file Self Assessment returns.

Understanding Crypto Income Tax

While capital gains get most of the attention, Income Tax on crypto activities often catches people off guard. 

The basic principle is that if you’re earning or receiving cryptocurrency, rather than just trading assets you already own, you might be looking at an income tax situation.

Mining cryptocurrency is the classic example. When you successfully mine a block or receive mining rewards, HMRC treats this as income equivalent to the pound value of the crypto at the time you received it.

This applies whether you’re mining Bitcoin, Ethereum, or any other cryptocurrency, and regardless of whether you immediately sell the coins or hold onto them.

Staking rewards work similarly. When you stake cryptocurrency and receive rewards for helping to secure a network, those rewards count as income. The pound value at the time you receive each reward is what gets added to your taxable income for the year.

Getting paid in cryptocurrency for work or services is another common trigger. Whether you’re a freelancer accepting crypto payments or an employee receiving part of your salary in Bitcoin, HMRC treats this exactly like regular income. 

The employer can handle tax and National Insurance through PAYE, but if they don’t, you’re personally liable and will need to pay tax via self assessment.

Always seek advice if you’re unsure as you shouldn’t classify crypto earnings under income tax in most cases.

Common Sources of Crypto Income

These activities typically generate income rather than capital gains, which means they’re taxed at your marginal income tax rate rather than the potentially lower CGT rates:

• Mining and validation rewards – Block rewards, transaction fees, and mining pool distributions
• Staking and delegation returns – Rewards for participating in proof-of-stake networks
• Employment payments – Salary, bonuses, or freelance fees paid in cryptocurrency
• DeFi yield farming – Periodic rewards from liquidity provision or protocol participation
• Airdrops for services – Tokens received in exchange for promotional activities or specific actions

The challenge with crypto income is determining the pound value at the exact moment you received it. 

Cryptocurrency prices are volatile and change constantly, so you need accurate timestamping and reliable price data. You can’t just wait until you sell the crypto and use that price – HMRC wants the value at the moment of receipt.

Income from crypto gets added to your other income and taxed at your marginal rate, which could be 20%, 40%, or 45% depending on your total earnings.

If you’re employed and this pushes your total income above certain thresholds, it could also affect things like your personal allowance or child benefit eligibility.

Self-Assessment Filing Requirements

You need to complete a Self Assessment if you’ve made capital gains above £3,000 or if your total disposal proceeds exceeded £50,000, even without profit. You also need to file if you have crypto income above the £1,000 trading allowance. 

In either of these situations, you’ll need to sign up by 5 October the year you need to report your income and make online filing and payment by 31 January 2026.

The DeFi Tax Minefield

Decentralized Finance (DeFi) has created some of the most complex tax scenarios in the crypto world. 

HMRC has issued guidance on DeFi taxation, but it’s not always clear-cut, and the technology is evolving faster than the tax rules can keep up.

The key concept HMRC uses is “beneficial ownership.” When you interact with DeFi protocols, the question is whether you still have beneficial ownership of your tokens or whether you’ve disposed of them. 

If you lose beneficial ownership, it’s a disposal for CGT purposes. If you retain beneficial ownership but earn rewards, those rewards are typically income.

Lending through DeFi platforms often triggers an immediate disposal, even though you expect to get your tokens back later. When you deposit tokens into a lending protocol, you usually receive different tokens in return (like cTokens on Compound or aTokens on Aave). 

HMRC may treat this initial deposit as a disposal of your original tokens and an acquisition of the protocol tokens.

Liquidity provision is another area where many people get caught out. When you add tokens to a liquidity pool on Uniswap or similar platforms, you’re typically disposing of your original tokens and receiving LP tokens in return. This can trigger an immediate CGT liability, even though you might think you’re just providing liquidity temporarily.

Staking through DeFi protocols can involve multiple taxable events. The initial staking might be a disposal if you receive different tokens (like stETH when you stake ETH). Then the staking rewards are typically income when you receive them. Finally, when you unstake and sell, that’s another potential CGT event.

Each interaction could potentially be a separate taxable event that needs to be tracked and reported. 

The 2026 Reporting Changes

January 2026 will mark the beginning of a new era for crypto taxation. The UK is implementing the OECD’s Crypto-Asset Reporting Framework (CARF), which will fundamentally change how crypto transactions are monitored and reported to tax authorities.

Under CARF, crypto service providers operating in or serving users in the UK must begin capturing and reporting standardized data to HMRC. This includes exchanges, wallet providers, DeFi platforms, and even NFT marketplaces. The implications are far-reaching and will affect every crypto user in the country.

Starting from 1 January 2026, platforms will need to collect detailed user information, including names, addresses, dates of birth, tax residence details, and tax identification numbers. But it’s not just personal data – they’ll also be reporting every transaction, including the type of asset, amounts, dates, and the nature of each transaction.

The first reports covering 2026 activity will be submitted to HMRC by 31 May 2027. This means that by summer 2027, HMRC will have a comprehensive database of crypto transactions for UK tax residents, whether those transactions were properly reported or not.

What CARF Means for You

The practical impact of CARF will be enormous, and it affects every aspect of how you’ll need to handle crypto taxes going forward:

• Automatic visibility – HMRC will receive detailed transaction reports without needing to request them from platforms
• Cross-referencing capability – Your Self Assessment will be checked against platform reports, making discrepancies obvious
• Historical scrutiny – Any unreported gains or income will be much easier for HMRC to detect and investigate
• Platform compliance pressure – Exchanges and services face £300 penalties per user for non-compliance, incentivizing accurate reporting
• Market consolidation risk – Some platforms may exit the UK market rather than deal with compliance burdens

This creates both risks and opportunities. The risk is obvious – any unreported gains or income will be much easier for HMRC to detect. But there’s also an opportunity to get ahead of this by ensuring your tax affairs are in order before the reporting starts.

The UK is among the first wave of countries implementing CARF, alongside the EU and over 50 other jurisdictions. 

By 2028, this will expand to include major crypto hubs like the United States, Singapore, and the UAE.

The goal is to create a global network of automatic information exchange for crypto assets, similar to what already exists for traditional financial accounts.

HMRC’s Enforcement Powers

HMRC has become much more sophisticated in tracking crypto transactions over the past few years. They have data-sharing agreements with major exchanges dating back to 2014, giving them access to historical transaction data for millions of users.

The tax authority has been sending “nudge letters” to crypto holders, encouraging voluntary disclosure of unreported gains. These letters typically arrive when HMRC has information suggesting you’ve had crypto transactions but haven’t reported them on your tax return.

The penalties for getting crypto taxes wrong can be severe. You’ll face a penalty of at least 20% of the unpaid tax, plus interest charges from when the tax should have been paid. For deliberate evasion, penalties can reach 200% of the unpaid tax. In serious cases, HMRC can pursue criminal prosecution.

But there’s a voluntary disclosure service that typically results in lower penalties if you come forward before HMRC discovers the problem. If you’ve missed reporting crypto gains in previous years, it’s usually better to disclose this voluntarily rather than wait for HMRC to find out.

The key message is that HMRC takes crypto taxation seriously now. The days of thinking you could fly under the radar are over. With CARF reporting starting in 2026, the visibility of crypto transactions will increase dramatically.

How Double Point Simplifies Your Crypto Tax Obligations

Cryptocurrency taxation has become incredibly complex, but you don’t have to navigate it alone. At Double Point, we understand that crypto taxes can feel overwhelming, especially when you’re trying to focus on your investments or business.

We handle the heavy lifting so you don’t need to become a tax expert or spend hours figuring out whether your latest DeFi transaction counts as income or a capital gain. We review all your crypto activities, classify each transaction correctly, and calculate your exact tax liability using HMRC’s rules.

With CARF reporting set to begin in 2026 and enforcement intensifying, having professional support is crucial for anyone deeply involved in crypto. 

Ready to get your crypto taxes sorted without the stress? Book a consultation with Double Point today.