Understanding the taxation of cryptoassets

As cryptoassets continue to gain traction among both individuals and businesses, the importance of understanding their tax treatment in the UK has become more pronounced. While the legal landscape around digital assets is still developing, HMRC has laid out its current stance on taxable obligations.

At Verallo, we help clients navigate this complex area with clarity and confidence. This article offers a high-level overview of cryptoasset taxation, HMRC guidance, and implications for both individuals and companies.

Cryptoassets and UK tax: No special treatment

HMRC does not operate a standalone tax regime for cryptoassets. Instead, digital assets fall under the umbrella of existing tax legislation. Rather than focusing on terminology, HMRC takes a substance-over-form approach, applying traditional tax rules based on how tokens are used, rather than how they’re described.

This principle-based model is intended to offer consistency as the sector evolves. However, HMRC’s guidance is not static. Updates and refinements to its position are ongoing, reflecting the fast pace of change in the digital economy.

What qualifies as a cryptoasset?

Under HMRC’s definition, cryptoassets are digitally secured representations of value or rights that can be stored, transferred, and traded electronically. Most rely on distributed ledger technology (DLT), though not all DLT systems involve cryptoassets.

Key categories include:

• Exchange tokens – cryptocurrencies such as Bitcoin, mainly used for transactions.
• Stablecoins – designed to reduce volatility, typically by linking their value to fiat currency or commodities.
• Security tokens – represent financial stakes, such as equity or entitlement to profits.
• Utility tokens – grant access to specific goods or services on a platform.

It’s worth noting that HMRC does not consider crypto to be currency, legal tender or a form of gambling. This distinction has important tax consequences.

Tax considerations for individuals

Capital Gains Tax (CGT): The default position

For most individuals, cryptoassets are acquired for personal investment. This means Capital Gains Tax is the primary consideration, triggered when a disposal occurs. A ‘disposal’ could be:

• Selling crypto for cash
• Exchanging tokens
• Spending crypto on goods/services
• Gifting crypto (excluding transfers to a spouse or civil partner)

CGT is due on the difference between the asset’s acquisition cost and its value at disposal. To calculate gains, HMRC applies rules similar to those used for shares – including same-day, 30-day, and pooled acquisition rules.

When income tax applies

In some cases, acquiring cryptoassets gives rise to income tax, typically when:

• Tokens are earned via mining or staking
• Airdrops are received without a purchase
• Employees receive crypto as remuneration

These scenarios may also attract National Insurance Contributions (NICs) if linked to employment.

Cryptoasset location and impact

For non-domiciled individuals using the remittance basis, or those concerned about inheritance tax, the location of cryptoassets matters. If a token is backed by a tangible asset, location follows that asset. Otherwise, HMRC considers the owner’s residence as the determining factor.

Business and corporate tax implications

HMRC outlines several potential tax treatments depending on the nature of a business’s involvement with cryptoassets:

1. Digital Services Tax (DST) – HMRC has stated that crypto exchanges could fall within scope of DST as online marketplaces. This tax applies at 2% to certain digital services revenues from UK users, though whether or not an exchange qualifies depends on its specific role and functions.
2. If crypto activity is part of the company’s trade, gains will be treated as trading profits — though HMRC sees this as rare.
3. Where crypto is held as an investment, gains on disposal are taxable under the chargeable gains regime.
4. If a token is acquired for long-term business use, it may fall under the intangibles regime, depending on how it’s accounted for.
5. Uncommon, but could apply where crypto is used as collateral in a debt arrangement.

Companies accepting crypto in exchange for goods or services must account for this income at fair market value in sterling at the point of transaction.

Emerging issues and grey areas

1. Investment relief and tax incentives

Venture Capital Schemes

Crypto-related businesses may be eligible for the Enterprise Investment Scheme (EIS) and other venture capital incentives, provided their primary activities qualify as trading. Accepting crypto as payment or using DLT will not automatically disqualify a business. However, companies that speculate in cryptoassets, broker deals, or hold significant crypto investments may find relief denied. Seeking advance assurance from HMRC is advised for clarity.

2. Other taxes to consider

Decentralised Finance

Guidance on Decentralised Finance arrangements continues to develop. As of today, capital-like returns (e.g. value growth) may fall under CGT, while income-like returns are treated as income. Even if labelled as ‘interest,’ these returns are not classified as such, given HMRC’s stance that cryptocurrencies are not money.

Stamp taxes

Most crypto transactions fall outside the scope of Stamp Duty and Stamp Duty Reserve Tax (SDRT). However, these taxes can apply if crypto is used as consideration for chargeable assets such as shares.

If cryptoassets are used to purchase UK land or property, SDLT applies, based on the sterling value of the crypto payment.

VAT implications

Normal VAT rules apply to the supply of goods or services in return for cryptoassets. However, where the transaction involves facilitating or arranging crypto transactions, HMRC classes the activity to be outside the scope of VAT or exempt – though this position is still subject to review, especially in light of international regulatory developments.

A shifting landscape

The taxation of cryptoassets remains a fast-moving area. HMRC’s guidance offers a practical framework but is subject to ongoing evolution as technologies, markets and laws develop.

Whether you’re an investor, a business accepting crypto, or a company operating in the digital asset space, it’s essential to stay informed and ensure your tax position is secure.

Speak to Verallo

At Verallo, we support clients in understanding and managing the tax implications of cryptoassets with clarity, precision, and foresight. If you’re navigating the crypto landscape and would like tailored advice, get in touch with our team today.