HMRC Crypto Tax Rates Explained [2024]

What Are the Taxes on Crypto in the UK?

Crypto taxes in the UK fall into two categories: Capital Gains Tax and Income Tax. Capital Gains Tax ranges from 10% to 20%, applied when disposing of cryptocurrency. Income Tax ranges from 20% to 45%, applied to crypto received as payment or mining rewards, for example.

The graphic below provides an overview of which types of taxes apply to various crypto transactions:

Capital Gains Tax Rates

Capital Gains Tax (CGT) is applied to the profit made from selling or disposing of an asset that has appreciated in value, including cryptocurrencies. The tax is only on the gain, not the total amount received.

The CGT rate varies based on your taxable income and the type of asset. For higher rate taxpayers (earning over 50,270£ in the 2023/2024 tax year), the rate for cryptocurrencies is 20%.

Here’s an overview of the capital gains tax brackets by income:

<figure class="block-table">
<table>
<tr>
<th>Tax Bracket</th>
<th>Income Range</th>
<th>CGT Rate</th>
</tr>
<tr>
<td>Basic Rate</td>
<td>12,571£ – 50,270£</td>
<td>10%</td>
</tr>
<tr>
<td>Higher Rate</td>
<td>50,271£ – 125,139£</td>
<td>20%</td>
</tr>
<tr>
<td>Additional Rate</td>
<td>Over 125,140£</td>
<td>20%</td>
</tr>
</table>
</figure>

The UK provides an Annual Exempt Amount as a tax-free allowance. For the 2023/2024 tax year, it is set at 6,000£, decreasing to 3,000£ for the 2024/2025 tax year. This amount can be deducted from your total gains, allowing you to realize gains up to this limit without incurring Capital Gains Tax.

Example: Capital Gains Tax

Your annual income is 60,000£ and you've made a 10,000£ gain from selling Bitcoin.

Subtract the tax-free allowance from your gain:

10,000£ (gain) - 6,000£ (allowance) = 4,000£ (taxable gain).

As a higher-rate taxpayer, you pay 20% CGT on cryptocurrencies:

20% of 4,000£ = 800£.

So, you owe 800£ in Capital Gains Tax on your Bitcoin sales.

Income Tax Rates

Income tax rates in the UK are determined based on the amount of income earned and the individual's residency status. It is important to note that income derived from cryptocurrencies is subject to income tax in the UK. 

The specific income tax rates applicable to cryptocurrency income will depend on the individual's overall income and their tax bracket.

There are three main bands for income tax rates: basic rate, higher rate, and additional rate. 

For the tax year 2023/2024, the rates are as follows:

<figure class="block-table">
<table>
<tr>
<th>Tax Bracket</th>
<th>Income Range</th>
<th>Income Tax Rate</th>
</tr>
<tr>
<td>Personal Allowance</td>
<td>Up to 12,570£</td>
<td>0%</td>
</tr>
<tr>
<td>Basic Rate</td>
<td>12,571£ – 50,270£</td>
<td>20%</td>
</tr>
<tr>
<td>Higher Rate</td>
<td>50,271£ – 125,139£</td>
<td>40%</td>
</tr>
<tr>
<td>Additional Rate</td>
<td>Over 125,140£</td>
<td>45%</td>
</tr>
</table>
</figure>

Example: Income Tax

You're a freelancer with an annual income of 30,000£, and you've been paid 5,000£ worth of Bitcoin for a project.

Your total income for the year is now 35,000£, which still falls within the basic rate band. Therefore, you'd pay 20% tax on your Bitcoin earnings, which equals 1,000£.

Scottish Income Tax Rates

Be aware that income tax rates in the UK differ if you reside in Scotland.‍ Have a look at the following table:

<figure class="block-table">
<table>
<tr>
<th>Tax Bracket</th>
<th>Income Range</th>
<th>Scottish Income Tax Rate</th>
</tr>
<tr>
<td>Personal Allowance</td>
<td>Up to 12,570£</td>
<td>0%</td>
</tr>
<tr>
<td>Starter Rate</td>
<td>12,571£ – 14,876£</td>
<td>19%</td>
</tr>
<tr>
<td>Basic Rate</td>
<td>14,877£ – 26,561£</td>
<td>20%</td>
</tr>
<tr>
<td>Intermediate Rate</td>
<td>26,562£ to 43,662£</td>
<td>21%</td>
</tr>
<tr>
<td>Higher Rate</td>
<td>43,663£ to 75,000£</td>
<td>42%</td>
</tr>
<tr>
<td>Advanced Rate</td>
<td>75,001£ to 125,140£</td>
<td>45%</td>
</tr>
<tr>
<td>Top Rate</td>
<td>Over 125,140£</td>
<td>48%</td>
</tr>
</table>
</figure>

Forms of Cryptocurrency Income

Cryptocurrency income in the UK falls into three categories: employment income, self-employment income, and miscellaneous income.

Employment Income: Treated like a salary. Employers calculate the value in pounds, report, and deduct Income Tax and National Insurance through PAYE. Employees should keep records of the crypto received and its value.

Self-Employment Income: Report as self-employment income. Maintain records of transactions and their value in pounds. Include this income on your Self Assessment tax return and deduct eligible business expenses.

Miscellaneous Income: Includes income from mining or airdrops. Keep records of transactions and their value in pounds. Report on the Self Assessment tax return and pay Income Tax based on the crypto's value.

Additional Crypto Taxes

While Capital Gains Tax and Income Tax cover most crypto activities, there are other taxes to consider in specific situations.

Value Added Tax (VAT)

In the UK, exchanging cryptocurrencies for traditional currency is exempt from VAT, based on the CJEU Hedqvist ruling and UK VAT legislation. However, when using crypto to pay for goods or services, VAT applies to the goods or services, not the cryptocurrency. For example, if you buy a laptop with Bitcoin, VAT is charged on the laptop, not the Bitcoin. The standard rate is 20%.

Inheritance Tax

Cryptocurrency holdings are subject to Inheritance Tax if the estate's total value exceeds £325,000. The market value in pounds on the date of death is used to determine the crypto's value. Reliefs and exemptions, such as leaving assets to a spouse or charity, can reduce the tax owed. Executors must pay the Inheritance Tax within six months of the death. The standard rate is 40%, but it can be reduced to 36% if 10% or more is donated to charity.