Understanding the tax implications of buying crypto

Croner-i VIP Tax Team

A surge in HMRC letters to crypto investors is causing widespread concern about a lack of awareness about their individual tax liability, warns Neil Tipping, lead tax enquiry consultant at Croner-i VIP Tax Team.

HMRC is becoming increasingly active with over 65,000 nudge letters having been sent out to suspected crypto investors in 2025. In 2024, 27,700 letters were sent out.  This is in advance of the new reporting obligations for cryptoasset service providers which come into force from 1 January 2026 with the first deadline for filing of reports being 31 May 2027 covering all of the 2026 activity.

What is becoming readily apparent is that many fringe investors do not understand the UK tax effects of investing in crypto so this article provides a brief framework for investors and their advisors to consider whether they are caught in the UK tax net.

If you’re buying crypto in the UK, it’s wise to be aware of how HMRC treats cryptoassets for tax purposes. While buying alone typically doesn’t trigger a tax liability, how you receive, use, swap, or dispose of crypto can have tax implications — and it’s easy to trigger a taxable event without realising.

1. Buying & holding: no immediate tax liability

When you purchase crypto - for example, Bitcoin, Ethereum or another token - simply buying and holding the asset does not create a tax charge. HMRC’s guidance confirms that you don’t pay tax when you buy tokens. 

However, this is where the caveats start: tax can be triggered when you use or convert those cryptoassets later.

2. Taxable ‘disposals’ & capital gains tax (CGT)

When you dispose of a cryptoasset, you may incur capital gains tax (CGT). HMRC treats disposal fairly broadly; a disposal can include:

• selling crypto for sterling;

• exchanging one crypto for another;

• spending crypto on goods or services; and

• gifting crypto to someone (except certain exempt cases).

When you dispose, you calculate the gain by subtracting the cost basis (what you paid, plus fees) from the value in sterling at the time of disposal. If the total taxable gains in a tax year exceed your CGT allowance, you will owe tax on the excess. 

The tax‐free CGT allowance is changing: for example, for 2025-26 the exempt amount is around £3,000. 

The rate you pay depends on your overall income and whether the gain pushes you into a higher tax band. 

3. Income tax – when crypto is received as income

If you receive cryptoassets in a way that amounts to income (rather than simply buying and holding), such as through employment, mining, staking, lending or in decentralised finance (DeFi), then income tax (and possibly National Insurance) may apply. 

For example:

• If your employer pays you in crypto, that counts as employment income, and HMRC expects the tax/NI through PAYE (if it qualifies as a readily convertible asset). 

• If you mine or stake crypto, HMRC typically treats the value when you receive it as income. 

Note that if you later dispose of those tokens, you may also face CGT on any subsequent gain above the value when you first received them. 

Irrespective of the above, the delineation between trading and investing in crypto is not always easy to pin down – the badges of trade are helpful but not definitive.

The tax effects, however, can be substantial where, for instance, there are significant profits made in one year and significant losses the next.  If you are considered to be an investor, you’ll be taxed under the capital gains regime and you won’t be able to carry back any losses to the previous year.  However, if you are considered to be actively trading, within limits, losses can be carried back.

With the crypto markets being provenly volatile, this distinction can and does have a devastating effect on investors.

4. Record-keeping & reporting requirements

Because crypto is treated like any other taxable asset, maintaining accurate records is crucial. HMRC’s guidance states you must keep records of token type, date received/acquired, disposal, number of units, value in GBP at each relevant time, wallet addresses, fees, etc. 

From a reporting perspective:

• If you have to complete a self assessment tax return (for example, because you have taxable gains above the allowance or crypto income) you must declare those gains/income. 

• As mentioned above, starting 2026, there are enhanced rules under the Crypto‑asset Reporting Framework (CARF) requiring crypto service providers to report user transaction data to HMRC. 

5. Practical tips & common pitfalls

• Buying alone is safe — so long as you just buy and hold. The tax triggers come from disposal or income receipt.

• Swapping tokens is a disposal. Many people assume that trading one crypto for another is tax-free, but HMRC treats it as a disposal event. 

• Using crypto to pay for goods/services counts as disposal. So even if you never convert to sterling it may still create a CGT event. 

• Watch accumulations of small events. Many small disposals may add up to exceed the CGT allowance and trigger a tax charge.

• Keep details of fees, costs, and valuations. Especially if you use multiple wallets/exchanges or transfer between them.

• Seek help if you receive crypto through employment/mining/DeFi. These income tax rules are less intuitive.

• Be prepared for HMRC scrutiny. The tax authority has signalled it’s ramping up oversight of crypto holdings and the secret to a swift and successful resolution to any HMRC enquiry is the maintenance of detailed records.

6. Summary

Buying crypto assets in the UK does not immediately trigger tax. But once you dispose of them (via sale, swap, spending, gifting) or receive them as income, tax obligations may arise.

For disposals: you’ll consider CGT (subject to annual allowance, currently £3,000).

For income: income tax and National Insurance may apply at the point of receipt. Careful record‐keeping, awareness of what constitutes a disposal, and timely reporting to HMRC are key.

By Neil Tipping, lead tax enquiry consultant at Croner-i VIP Tax Team