Airdrop Tax: HMRC Guidance explained + Instructions [2023]

Explore HMRC's guidelines on UK airdrop tax: distinguishing airdrops from bounties, understanding their tax implications, and navigating income and capital gains tax.

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Key Takeaways

  • Cryptocurrency airdrops are generally free distributions to promote new digital currencies.
  • Two types of airdrops exist: regular airdrops and bounties.
  • For taxation, bounties are considered taxable income, while regular airdrops are not subject to income tax.
  • If an individual is classified as a trader by HMRC, both types of airdrops are considered trading income and are taxable​​.
Written by
Florian Wimmer
Last Updated:
March 7, 2024
Chapter 1

Understanding Airdrops

Defining airdrops, explaining their purpose and the requirements for receiving them.

Can there be such a thing as free money? We’re taking a look at how the UK’s HMRC treats airdrops for tax purposes, why the two types of airdrops are taxed differently, and when your airdrop is tax-free.

This guide is part of our series UK Crypto Taxes.

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What is an airdrop and how to receive one?

An airdrop refers to the free distribution of a cryptocurrency token or coin, usually to promote a new digital currency. It's typically distributed to existing holders of a particular blockchain currency, like Bitcoin or Ethereum. 

To receive an airdrop, you generally need to hold a specific cryptocurrency at a certain time or participate in a particular network activity. 

It's vital to have a compatible wallet that supports the airdropped tokens, and be part of a community or network where the airdrop occurs. 

Always exercise caution, as fraudulent airdrops exist, aiming to steal personal or financial information!

The different kinds of airdrops

When talking about airdrops – specifically in the context of airdrop taxation – it is important to understand the distinction between the two kinds of airdrops: Airdrops and Bounties.

Airdrops and bounties explained
  • An airdrop is the free distribution of cryptocurrency tokens or coins to holders of an existing blockchain currency. It's often used to engage potential users in a new project.
  • A bounty is a reward offered for completing specific tasks, such as bug reporting, promoting a project on social media, or contributing to development.

While airdrops distribute tokens without any expectation of work or contribution, bounties require active participation and effort in the project. Both are marketing strategies in the crypto space, but airdrops are about mass engagement, while bounties target individual contributions and specific tasks.

For example, in 2020, the decentralized finance (DeFi) platform Uniswap airdropped its governance token, UNI, to users who had interacted with the protocol before a specific date. Existing users found 400 UNI tokens in their wallets, which was a significant value at the time of the airdrop.

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Chapter 2

Taxation at Reception

HMRC tax treatment when receiving an airdrop or bounty.

Receiving Bounties

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Receiving a bounty in exchange for an activity or service qualifies as taxable income. In this case, you need to declare any bounties you received as “miscellaneous income” on your Self-Assessment.

Income Tax rates range from 20% to 45%, depending on your tax bracket, and you might benefit from tax allowances.

Read more about UK Crypto Tax Rates and UK Crypto Tax-Free Allowances.

Receiving Airdrops

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HMRC specifies that Income Tax does not apply to any airdropped tokens received without doing anything in return. This includes tokens that are not received as part of a trade or business involving cryptoasset exchange tokens or mining.

Keep in mind that you will still have to pay Capital Gains Tax when you dispose of the airdrop. 

Continue reading: How to avoid or reduce crypto taxes in the UK.

Trading Income

<div fs-richtext-component="tax-status-income-tax" class="tax-status-pills"><div>Income Tax</div></div>

If you are considered a trader by HMRC, both types of airdrop qualify as trading income and need to be included in your tax return so they can be subjected to income tax. 

Read this to find out if you are a Crypto Investor or Trader?

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Chapter 3

Taxation at Disposable

HMRC tax treatment when disposing of an airdrop or bounty.

Selling Airdrops or Bounties

<div fs-richtext-component="tax-status-capital-gains-tax" class="tax-status-pills"><div>Capital Gains Tax</div></div>

Any capital gain resulting from the sale of an airdrop or bounty is subject to Capital Gains Tax.

The gain is calculated based on the difference between the market value at the time of the disposal and the market value at the time of receipt.

The Capital Gains Tax rate ranges from 10% to 20%, depending on your income bracket.

Learn more about calculating your cost basis: UK Cost Basis Methods.

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Chapter 4

Your Blockpit Crypto Tax Report

Automate your tax return with the crypto tax calculator.

Optimize & file your crypto taxes with Blockpit

Blockpit creates the most comprehensive crypto tax reports in PDF format. The report provides information about all your balances and transactions and can be used as proof of origin with banks or tax advisors. It contains all relevant transactions of your account in the selected tax year and shows details such as timestamp, amount, asset, costs and fees of the individual transactions.

Find guidance on tax reporting procedures here: Crypto Tax Forms UK

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Using Blockpit couldn’t be easier:

1. Import your transactions

Blockpit offers direct integrations for crypto exchanges, wallets and DeFi protocols. Automatically import your transactions via API integration, wallet address synchronization, or by manually uploading an Excel file. 

Discover all crypto integrations

2. Validate & Optimize

Blockpit offers smart insights and suggestions to optimize your tax report, fix issues, add missing values and to validate your transactions.

3. Generate your tax report

Generate your compliant tax report with the click of a button. Our tax engine calculates your tax report on the basis of the UK tax framework.

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Disclaimer: The information provided in this article is for general information purposes only. The information was completed to the best of our knowledge and does not claim either correctness or accuracy. For detailed information on crypto regulations, we recommend contacting a certified legal advisor in the respective country.