How do you report and pay taxes on cryptocurrency assets?

In 2025–2026, tens of thousands of letters were sent to cryptocurrency investors who were suspected of underpaying taxes

How do you declare and pay taxes on any profits you've made?

In the UK, nearly 10% of people own cryptocurrency, but HMRC believes tens of thousands are not properly paying taxes on them.

The Financial Conduct Authority (FCA) reports that 8% of adults in the UK owned cryptocurrency in 2025, compared to 4% in 2021.

There is worry, though, that some cryptocurrency investors are unaware of the tax ramifications of acquiring, retaining, and disposing of these assets.

According to a Freedom of Information (FOI) request by accounting firm UHY Hacker Young, HMRC sent out 81,000 warning letters to cryptocurrency investors it suspected of underpaying tax in 2025-2026, up from 27,700 in 2023-2024 and 65,000 in 2024-2025.

Watch the entire video here. Neela Chauhan, a partner at the company, stated: "Many of the traders are young, have little prior experience with HMRC, and frequently operate under the presumption that HMRC has limited visibility over their activities."

According to recent FCA research, UK-based cryptocurrency investors are typically younger, with 15% of those between the ages of 18 and 34 owning cryptocurrency assets compared to 9% of those between the ages of 35 and 54.

"The tax treatment of cryptocurrency in the UK is complex, and many people do not fully understand their reporting obligations or recognize when transactions give rise to taxable income or gains that must be disclosed to HMRC," Chauhan continued.

"Investors in cryptocurrencies frequently overlook the possibility that they may have made a taxable gain even when exchanging one cryptocurrency for another, and they may not be aware that lending cryptocurrency can result in taxable income."

When cryptocurrency assets may be subject to capital gains tax.

As with other assets like stocks or shares, you might be subject to taxation if you sell cryptocurrency assets for gain or profit.

A cryptocurrency asset can be disposed of by selling it, exchanging it for another kind of cryptocurrency, using it to pay for goods or services, or giving it to someone elseunless that someone is your spouse, a civil partner, or you are donating it to charity.

Gains must be computed for each type of cryptocurrency since different kinds, like Dogecoin and Bitcoin, are usually treated as distinct assets.

Each fiscal year, a capital gains tax (CGT) allowance of £3,000 is given to each individual. This implies that you won't have to pay any CGT on capital gains up to £3,000.

You will probably owe CGT if you sell assets, including cryptoassets, for more than this allowance in gains.

The gain is typically computed as the difference between the asset's purchase price and its sale price.

However, in certain situations, such as when you have cryptocurrency assets that have been transferred between related individuals like a spouse or civil partner, you must use the market value to calculate a gain.

How to pay and report capital gains from cryptocurrencies.

Gains on cryptocurrency assets can be reported using the CGT real-time service or by filing a self-assessment tax return at the end of the tax year.

In the cryptoasset section of your self-assessment return, you should enter your gain in pounds sterling.

The real-time CGT service allows you to report assets sold during the previous or current tax year.

You can deduct some allowable costs from your gain calculation. This covers expenses for advertising a cryptocurrency asset for sale as well as transaction fees, such as exchange or trading fees.

Capital losses from cryptocurrency assets can also be used to offset capital gains, but you have to notify HMRC of these losses.

In the meantime, you won't be required to pay CGT on the amount you paid income tax on a cryptocurrency asset. However, when it comes time to sell that asset, you might have to pay CGT.

HMRC will send you a letter or email with a payment reference number beginning with X as soon as you report any gains.

When paying taxes via online banking, a check, or the online tax payment service, you use this reference.

Any gains must be reported by December 31st of the tax year in which they were made, and payment must be made by January 31st.

If you had a gain during the 2025-2026 tax year, for instance, you would have to report it by December 31, 2026, and pay it by January 31, 2027.

When a cryptocurrency asset may result in income tax liability.

If you received cryptocurrency in a certain manner, you might also be liable for income tax.

Digging.

Mining entails contributing to the solution of challenging mathematical puzzles and upholding a network of cryptocurrency assets, for which you may be compensated.

Income from mining is typically treated by HMRC as trading or miscellaneous income, which means it is taxable.

Placing a stake.

Staking is the process of temporarily locking up your cryptocurrency assets in order to maintain a blockchain network. You can receive additional cryptocurrency as a reward in exchange.

These earned cryptocurrency assets are subject to income tax, just like mining.

Airdrops.

Giving someone free tokens is known as a cryptocurrency airdrop, and it can occasionally be used as a marketing or advertising tactic to increase awareness of a new digital currency.

Additionally, you might get airdrops for completing a survey or using social media to support the promotion of a digital currency.

Income tax is usually due if you received airdropped cryptocurrency assets in exchange for a service.

Income from work.

If your employer gives you cryptocurrency as income, it counts as money and is taxable at the asset's value.

Reimbursement for earnings from trading and other sources.

An annual allowance of £1,000 is given to you for trading or other income.

Income from mining, staking, and airdropping may be subject to this; therefore, income tax would only be imposed on earnings that exceeded this limit.