Cryptocurrency Taxation in the UK: HMRC's 2025 Position Explained

HMRC's Legal Framework for Cryptoassets

HMRC's position on the taxation of cryptoassets is set out primarily in its Cryptoassets Manual (CRYPTO10000 onwards), published progressively since 2018 and substantially updated in 2022, 2023, and 2024. HMRC does not treat cryptoassets as currency for tax purposes. They are treated as a form of intangible capital asset, and gains on their disposal are subject to capital gains tax (CGT) under the Taxation of Chargeable Gains Act 1992 (TCGA 1992).

This treatment flows from a fundamental policy decision: treating bitcoin and other cryptoassets as a form of currency would make gains exempt from CGT (under section 269 TCGA 1992, which exempts currency used as currency). HMRC has consistently rejected this characterisation, a position supported by Passporting Ltd v HMRC [2022] UKFTT 00302 (TC) and the wider body of tribunal decisions.

The Pooling Rules for Crypto CGT

UK residents computing CGT on cryptoasset disposals must use the same pooling rules that apply to shares and securities under sections 104-107 TCGA 1992 — the "Section 104 pool" methodology. Each type of cryptoasset is maintained as a separate pool. Purchases add to the pool; disposals reduce it, with the gain or loss calculated against the average pool cost.

The allowable cost of a disposal is:

Allowable Cost = (Disposal Proceeds ÷ Total Pool Value at Disposal) × Total Pool Cost

Same-Day Rule and the 30-Day Rule

Two overriding provisions take priority over the Section 104 pool, specifically designed to prevent the artificial creation of losses through same-day and near-date transactions (bed and breakfasting).

Same-day rule (Section 105 TCGA 1992): Where an individual both acquires and disposes of the same type of cryptoasset on the same day, the disposal is matched against that day's acquisition first, before using the pool.

30-day rule (Section 106A TCGA 1992): Where an individual disposes of cryptoassets and then reacquires the same type within 30 days, the disposal is matched against the reacquisition (in chronological order) rather than against the pool.

The practical effect: selling bitcoin on 1 March and re-buying it on 15 March results in the disposal being matched against the 15 March acquisition — not against the pool. If the re-acquisition price is similar to the disposal price, no loss is recognised. This prevents the "selling at a loss to crystallise a capital loss while retaining the position" technique that is used for traditional shares.

Rule	Priority	Effect
Same-day rule	1st	Disposal matched against same-day acquisition
30-day rule	2nd	Disposal matched against acquisitions within next 30 days
Section 104 pool	3rd	Disposal matched against pool average cost

DeFi Taxation: HMRC's Position

HMRC published updated DeFi guidance in February 2023 (CRYPTO60000 onwards) and further supplementary guidance in late 2024. The position distinguishes between DeFi activities that generate income (taxable as miscellaneous income) and those that generate capital gains.

Staking Rewards

HMRC's position is that staking rewards — tokens received for validating transactions and participating in proof-of-stake consensus mechanisms — are generally taxable as miscellaneous income at receipt, based on the market value of the tokens at the date of receipt. The tokens are then held with a base cost equal to their income value, and any further gain on disposal is subject to CGT.

This treatment has been challenged on the basis that staking involves the exercise of a right arising from ownership of the staked tokens — more analogous to a CGT-only receipt. The courts have not yet definitively resolved this question, and the more recent 2024 HMRC guidance acknowledged the ongoing technical debate.

DeFi Lending

Where cryptoassets are lent through a DeFi protocol (e.g., lending ETH through Aave or Compound), HMRC's view is that:

• The lending itself may be a CGT disposal if the "beneficial ownership" of the cryptoasset passes to the protocol
• Interest or yield received is income (miscellaneous income or savings income depending on the nature of the return)

The "beneficial ownership" question depends on the specific protocol's legal structure — whether the deposited tokens are legally transferred to the protocol or remain beneficially owned by the depositor. This is a highly fact-specific analysis.

Liquidity Mining and LP Tokens

Adding liquidity to a decentralised exchange (DEX) such as Uniswap involves depositing tokens and receiving LP (liquidity provider) tokens in return. HMRC's position:

• Depositing tokens into the LP may be a disposal of those tokens (CGT event)
• Receiving LP tokens is an acquisition at market value at the time of receipt
• Fee income earned while in the LP is income
• Impermanent loss (the reduction in value of the LP position compared to holding the underlying tokens) is a CGT loss if it is a realised loss

Employment Income Treatment

Where an employee receives cryptoassets as part of their remuneration — payment of salary in bitcoin, or receipt of tokens as a bonus or as part of a token incentive plan — HMRC treats the receipt as employment income under Chapter 1 of Part 2 of the Income Tax (Earnings and Pensions) Act 2003 (ITEPA 2003), in the same way as a payment of shares or other assets.

The income charge arises on the market value of the tokens at the date of receipt. The employer (or deemed employer) is liable to PAYE and NIC on the receipt. Section 50 of ITEPA 2003 extends the employment income charge to benefits received in non-cash form, including cryptoassets.

Readily Convertible Assets

If the cryptoasset received is a "readily convertible asset" (RCA) — broadly, an asset that can be easily converted to cash — it is subject to PAYE withholding in the same way as cash salary. Most mainstream cryptoassets (bitcoin, ether, and tokens listed on major exchanges) are RCAs. Employer tokens that have no secondary market, or that are subject to contractual restrictions preventing sale, may not be RCAs — though HMRC takes a broad view.

The Annual Exemption and Reporting Thresholds

The CGT annual exempt amount is £3,000 for 2025/26. Gains above this threshold (after deducting allowable losses) are subject to CGT at 18% (basic rate) or 24% (higher rate) for most assets, including cryptoassets.

Cryptoasset gains must be reported on the self-assessment return if:

• Total gains exceed the annual exemption (£3,000)
• Total proceeds exceed four times the annual exemption (£12,000)

Even if gains are below the reporting threshold, losses can only be claimed if the disposal is reported. Individuals who have incurred cryptoasset losses — which is common given market volatility — should report them on the return to preserve the ability to offset future gains.

HPT Group advises individuals and businesses on cryptoasset tax compliance, DeFi position analysis, and the structuring of crypto-holding arrangements to manage the UK CGT position. For high-frequency traders, DeFi participants, and individuals with complex multi-chain portfolios, the reconstruction of historic transactions — now required by HMRC's Connect system cross-referencing on-chain data with exchange reporting — is a specialist exercise. Contact our crypto tax team or apply for a review.