How HMRC taxes cryptocurrency in the UK
HMRC does not consider cryptocurrency to be currency or money. Instead, it treats crypto assets as a form of property subject to Capital Gains Tax when disposed of. This applies regardless of which cryptocurrency you hold — Bitcoin, Ethereum, and all other tokens are treated the same way.
You pay CGT on your gain — the difference between what you received when you sold or disposed of the crypto and what you originally paid for it (including transaction fees). The gain is added to your other income to determine whether you pay the 18% or 24% rate.
HMRC's three matching rules
HMRC uses a specific set of matching rules to calculate cost when you hold multiple lots of the same cryptocurrency. These rules apply in strict order:
| Priority | Rule | How it works |
|---|---|---|
| 1st | Same-day rule | Disposals are matched against acquisitions on the same day first |
| 2nd | 30-day rule | Then matched against acquisitions within the following 30 days (prevents bed & breakfasting) |
| 3rd | Section 104 pool | Remaining disposals matched against the average cost of your entire pool of that asset |
Crypto income vs crypto gains
Not all crypto receipts are subject to CGT. Some crypto income is taxed as Income Tax instead:
Income Tax applies to: mining rewards (if done at a commercial scale), staking rewards, airdrops received in exchange for a service, and crypto received as employment income or from DeFi lending.
CGT applies to: selling crypto for fiat, swapping crypto-to-crypto, using crypto to pay for goods/services, gifting crypto to anyone other than a spouse.
The distinction matters significantly for tax planning — Income Tax rates (up to 45%) are considerably higher than CGT rates (18-24%).
NFTs and DeFi
NFTs (non-fungible tokens) are treated the same as other crypto assets for CGT purposes. Each NFT is a separate asset, so buying and selling NFTs generates individual CGT calculations rather than pooled averaging.
DeFi activities (liquidity provision, yield farming, wrapping tokens) are complex — HMRC treats each swap or receipt as a potentially taxable event. The tax treatment depends on whether you retain beneficial ownership throughout, which varies by protocol. Specialist advice is recommended for significant DeFi activity.