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Is crypto subject to Income Tax?

  • 4 min read
  • 8 Feb 2022
Is crypto subject to income tax

So, when is crypto subject to Income Tax? If you’ve been reading about crypto and the tax implications that come with it, then you might be familiar with Capital Gains Tax. But, depending on the situation, you might also have to pay Income Tax on your crypto earnings.

What is Capital Gains Tax again?

Capital Gains Tax is tax on profit that you make over £6,000 by selling assets. Assets can be anything from rental properties to shares, and in this case, also cryptocurrency. Cryptocurrency in the UK is considered a capital asset and not an actual currency such as GBP. 

So do you pay tax on all your gains?

Not quite. You only pay tax on gains after £6,000 in profit during a tax year. This means that if you do not make profits over this amount, you won’t need to pay any Capital Gains Tax. This is called the Capital Gains Tax allowance.

How do I calculate how much I would pay in Capital Gains Tax?

The amount of Capital Gains Tax you would pay differs, depending on the asset you’re selling and making a profit from. The below table highlights some of the most popular assets and their current rates for the 2023/24 tax year.

Type of assetBasic rateHigher rate
Residential property18%28%

Don’t worry, we’re not going to make you dig up those maths skills you’ve worked so hard to bury and avoid. Instead, you can use our calculator. Input all the information required that applies to you and work out how much CGT you should pay.

Your situation

Outlined number oneOutlined number one
How did you make money?
Profit from capital gains
Annual salary
Other income

Tax and profit

Outlined number two
  • Your profit from
    Incl. £12,300 tax-free CGT allowance
  • Capital Gains Tax to pay
  • Profit after tax

How your capital gains tax is calculated

Your total capital gains tax (CGT) owed depends on two main components:

  1. How much you earn in total
  2. What type of assets you sell

Your overall earnings determine how much of your capital gains are taxed at 10% or 20%.
Our capital gains tax rates guide explains this in more detail.

In your case where capital gains from shares were £20,000 and your total annual earnings were £69,000:

Capital gains tax (CGT) breakdown

You pay no CGT on the first £12,300 that you make

You pay £127 at 10% tax rate for the next £1,270 of your capital gains

You pay £1,286 at 20% tax rate on the remaining £6,430 of your capital gains

When is crypto considered a profit vs an income?

There are some instances where crypto is not only considered a gain that supplements your main income, but as the main income itself. This means that instead of being additional income on top of your usual wage, earning through crypto is now your main activity and brings in the majority of your income. 

Crypto income taxed as Capital Gains

💰 Spending crypto

💰 Selling crypto

💰 Exchanging crypto

HMRC can take the view that your pattern of buying and selling of cryptocurrencies is considered “trading”, which means that you are generating the majority of your income through crypto trading and you can be charged Income Tax.

Crypto income taxed as Income Tax

💰 Mining tokens

💰 Staking rewards

💰 Getting paid in crypto (which you also pay National Insurance on)

💰 Airdrops (but only those that are made in return for, or in expectation of, a service)

What is Income Tax?

Income Tax is tax that you pay on your regular earnings. You only pay it if, during a full tax year, you earn more than £12,570. This is called a Personal Allowance. Many people pay Income Tax through Pay As You Earn (PAYE). With this method, the tax you owe is automatically taken off before you’re paid your wages or pension. Your employer will know how much to deduct based on your tax code. 

You also need to pay Income Tax in some other situations, like the ones mentioned below. In these cases, you would file and submit a Self Assessment tax return. 

  • You’ve earned more than £1,000 from self-employment
  • You’ve earned more than £2,500 from other untaxed income
    • An example would be income you earn from renting out property

How much Income Tax will I pay? 

The amount of Income Tax you pay is based on the amount of money you earn. You’ll only be taxed on your earnings, after the tax-free Personal Allowance of £12,570. The rates and income thresholds are set by the government and are currently as shown below.

IncomeTax rate
Up to £12,5700%Personal allowance
£12,571 to £50,27020%Basic rate
£50,271 to £125,14040%Higher rate
over £125,14145%Additional rate

In order to calculate exactly how much tax you’d pay based on your earnings threshold, you can use our Income tax calculator. 

Your situation

Outlined number oneOutlined number one
I am
Annual self-employed income
Self-employed expenses

Tax and profit

Outlined number two
  • Total earnings
    £1,000 tax-free Trading Allowance
  • Tax to pay
    £7,286 income tax
    £159 class 2 National Insurance
    £3,549 class 4 National Insurance
  • What you’re left with

How your income tax is calculated

When you’re self-employed, you have to pay your income tax and national insurance contributions yourself in your annual Self Assessment. Our calculator helps you quickly assess how much you owe.

However you may be eligible for a tax refund when:

  1. You already made tax payments for the year but your annual income ended up less than planned
  2. You have done things that qualify for a tax relief (made private pension contributions, given to charity, etc.)

In your case when you earn £50,000:

Income tax breakdown

You pay no income tax on first £12,570 that you make

You pay £7,286 at basic income tax rate (20%) on the next £36,430

National insurance contributions breakdown

No contributions on the first £9,568 that you make

You pay £3,549 in contributions (at 9%) on the next £39,432 that you make

You pay £159 in NI Class 2 contributions

So, what does this have to do with crypto?

Basically, the tax rules with crypto are ever-changing as society, along with HMRC, learn to adapt and accept it into the mainstream. There have now been cases where HMRC have taxed people Income Tax as opposed to Capital Gains Tax due to a certain person’s patterns, when buying and selling crypto. Once you are considered to be “trading” crypto, this automatically is taxed as regular income because it is your main activity and brings in the majority of your earnings. If trading crypto is your full-time career and where you make the majority of your income, then Income Tax is applied.

The amount of Income Tax you pay depends on what income band you’re in from the table mentioned above. There are also some instances where you may need to also make National Insurance contributions too.  

Which crypto activities are taxed as a full-time income, according to HMRC?

  • Mining tokens
  • Staking rewards
  • Getting paid in crypto
  • Which you also pay National Insurance on
  • Airdrops
  • Only those that are made in return for, or in expectation of, a service

Crypto is sometimes subject to Income Tax

Yep, crypto can be subject to Income Tax. Determining whether you’re going to be subject to CGT or Income Tax is down to what your primary income is and how much of your total income crypto accounts for. It also depends on what you do with your crypto assets. 

crypto tax uk

It is important to know what you’ll be taxed on and to stay up-to-date with news from HMRC regarding cryptocurrency. If you haven’t already, you should read up on the cryptoassets manual that HMRC provides on their website. As crypto continues to grow and evolve, we’ll keep you up to date on the tax side.

Filing a crypto tax return?

Well, listen up. We teamed up with Koinly to bring you a quick and easy solution: a tool to create crypto tax reports. Want to get your crypto tax report generated and tax return filed all in one? Look no further. Up to 1000 transactions totally free!

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