‍Introduction

According to statistics, HMRC sent warning letters to approximately 65,000 individuals suspected of evading crypto taxes during the 2024-2025 tax year, a number that has more than doubled from the previous year. HMRC has stated it will use data from cryptoasset service providers to track tax evasion and will obtain more detailed user transaction information starting in 2026, in accordance with the OECD’s Cryptoasset Reporting Framework. This move highlights the UK's current trend towards stricter tax regulation and enforcement for crypto assets. In addition to sending warning letters, HMRC also updated a series of detailed crypto asset tax guides in the first half of 2025, providing tax guidance for individuals and companies holding or disposing of crypto assets. Individuals who receive crypto assets through work or activities like mining, staking, lending, or liquidity pool rewards are subject to Income Tax. When selling, exchanging, or gifting crypto assets, Capital Gains Tax is due. Companies must pay Corporation Tax on their profits and gains.

Therefore, This article intends to systematically outline the UK's crypto asset regulatory and tax systems, aiming to help Web3 Participants clarify their tax obligations and provide a tax reference.

1. The UK's Definition and Classification of Crypto Assets

The UK defined crypto assets in the 2023 amendment to the Financial Services and Markets Act 2000 (FSMA). It refers to any digital representation of value or contractual rights that is cryptographically secured, can be transferred, stored, or traded electronically, and uses technology supporting the recording or storage of data (which may include distributed ledger technology).

On April 29, 2025, HM Treasury released the draft Financial Services and Markets Act 2000 (Regulated Activities and Miscellaneous Provisions) (Cryptoassets) Order 2025," which specifies the categories of regulated crypto assets and regulated crypto asset activities. According to this Order, among the regulated crypto asset categories, a qualifying crypto asset is defined as a crypto asset that is fungible and transferable. This definition excludes electronic money, fiat currency, central bank digital currencies, and crypto assets that cannot be transferred or sold in exchange for money or other crypto assets (except for redemption by the issuer), or those that can only be used to purchase goods or services from the issuer or a limited network of service providers. Within this, a qualifying stablecoin is a qualifying crypto asset that (by reference to a fiat currency) seeks or purports to maintain a stable value by its issuer holding, or arranging for the holding of, fiat currency or fiat currency and other assets. This definition excludes crypto assets that represent a right to repayment of funds received by way of deposit. Regulated crypto asset activities include issuing stablecoins, arranging qualifying crypto asset transactions, qualifying crypto asset staking, and operating a qualifying crypto asset platform.

2. Evolution of the UK's Crypto Asset Regulatory Framework

Since 2022, the UK government has focused on the emerging field of crypto assets, classifying them as regulated financial services. It has been developing draft regulations and applicable guidelines, gradually integrating crypto assets into the mainstream financial regulatory and tax systems.

In April 2022, the UK government committed to introducing a new regulatory regime for crypto assets to address the risks and opportunities they present. In October 2023, HM Treasury published detailed proposals for establishing a UK financial services regulatory regime for crypto assets, including stablecoins. On November 21, 2024, the government confirmed it would proceed with this regime, largely consistent with the previously published proposals.

On April 29, 2025, HM Treasury released the draft legislation “Financial Services and Markets Act 2000 (Regulated Activities and Miscellaneous Provisions) (Cryptoassets) Order 2025,” accompanied by a policy statement. To ensure legislative consistency, this draft also amends the Financial Promotion Order 2005 to ensure that the changes to the definition of crypto assets in the Order apply to the Financial Promotion Order. It also amends other secondary legislation, such as the Electronic Money Regulations 2011, and repeals the temporary provision in the Money Laundering Regulations 2017 that allowed crypto asset firms registered with the UK Financial Conduct Authority (FCA) to approve their own financial promotions.

For crypto asset intermediaries, the Financial Conduct Authority (FCA) has stated its regulatory approach will be based on international frameworks. Its goal is to regulate intermediaries based on the principle of "same risk, same regulation," while also considering the characteristics of the broader crypto asset market. In May 2025, the FCA listed the refinement of the crypto asset regime as a priority in its 2025-2026 work plan. On September 17, 2025, it published a consultation paper on minimum standards, aiming to allow fast-growing crypto firms to compete internationally, proposing to waive four principles for crypto asset trading platforms.

In addition, HMRC updated a series of crypto asset tax guides in the first half of 2025, providing detailed guidance for related tax arrangements.

3. A Breakdown of the UK's Crypto Asset Tax System

At the legislative level, HMRC considers crypto assets to be intangible assets, not currency or money. Therefore, they are taxed according to existing principles of property and capital gains, not through foreign exchange or currency exchange rules. The UK has integrated crypto asset taxation into its existing system, focusing on the ownership and disposal of assets, with a dual structure of Income Tax and Capital Gains Tax for individuals. At the same time, UK crypto asset taxation focuses on the underlying economic benefits, adopts a technology-neutral principle, is broadly applicable, and avoids mentioning specific crypto technologies or networks.

At the enforcement level, UK crypto asset taxation relies on individual responsibility and self-reporting. However, starting in 2026, the UK will implement the OECD's Cryptoasset Reporting Framework (CARF), requiring crypto asset service providers to report user data directly to HMRC, making individual crypto asset taxation more transparent.

In the first half of 2025, HMRC updated a series of crypto asset tax guides for individuals and companies. The specific rules are as follows:

3.1 Tax Rules for Individuals

At the legislative level, the tax rules for individuals holding and disposing of crypto assets mainly involve the distinction between tax types and tax reporting rules. At the enforcement level, HMRC's regulation of individual crypto asset taxation is trending towards stricter enforcement.

3.1.1 Tax Categories Involved

Personal taxation of crypto assets primarily involves three types of taxes: Income Tax, Capital Gains Tax, and Inheritance Tax.

(1) Income Tax

Individuals who receive crypto assets through work, or through activities such as mining, staking, lending, or liquidity pool rewards, may trigger Income Tax and National Insurance contributions. This includes any income derived from Decentralised Finance (DeFi). Crypto assets received from mining, staking, or lending, if not part of a trade, are treated as "other taxable income."

Regarding allowances, individuals have a trading and miscellaneous income allowance of up to £1,000 per year. Income from crypto assets counts towards this allowance. Individuals with total miscellaneous income between £1,000 and £2,500 must contact HMRC. If it exceeds £2,500, they must register for Self Assessment.

Individuals need to check if their tokens are classified as readily convertible assets (RCAs). Tokens like Bitcoin fall into this category:

－ If the income is an RCA, the UK employer must first pay the employee's Income Tax and National Insurance contributions through PAYE before paying the employee. If the employer pays wages in tokens, they will estimate the value of the tokens, pay the Income Tax and National Insurance based on that estimate, and then deduct this tax from the current salary. The employee is responsible for checking and ensuring the correct amount of tax is paid to HMRC.

－ If the income is not an RCA, the employee needs to ask their employer if the Income Tax has been paid through the PAYE system. If not, the employee must pay it themselves. To pay your own Income Tax, you must complete a Self Assessment tax return in GBP (Pound Sterling).

If you later sell crypto assets on which you have already paid Income Tax, you will calculate Capital Gains Tax normally on any increase in the token's value since you received it.

(2) Capital Gains Tax

For most individuals who hold crypto assets as an investment, disposing of the asset is subject to Capital Gains Tax. A disposal may include selling crypto assets for fiat currency, exchanging one crypto asset for another, using crypto assets to pay for goods or services, or gifting crypto assets (except to a spouse or civil partner).

Regarding allowances, the Capital Gains Tax annual exempt amount for most individuals has been reduced. Any total gains exceeding this allowance must be declared. The annual Capital Gains Tax exempt amount for the 2024-2025 tax year has been reduced to £3,000 and will remain at this level for the 2025-2026 tax year.

Regarding rates, the Capital Gains Tax rates changed on October 30, 2024. Before October 30, 2024, the basic rate was 10% and the higher rate was 20%. From October 30, 2024, the basic rate is 18% and the higher rate is 24%.

When calculating personal gains, the gain is usually the difference between the asset's purchase price and its selling price. However, in situations like transferring crypto assets between connected parties, fair market value must be used to calculate the gain. When calculating gains, you can deduct allowable costs and may use capital losses from other assets to reduce your gain, provided you report this to HMRC. If you have already paid Income Tax on any part of the crypto asset's value, you do not need to pay Capital Gains Tax on that same portion of the value.

For calculating gains on tokens sold 30 days after purchase, the pooling rules apply. This involves grouping each type of token you own into "pools" and calculating an average cost for each token type. You are required to add the amount paid to the corresponding pool each time you buy or receive tokens. When you dispose of tokens, you deduct a proportionate amount of the pooled cost and other allowable costs. Allowable costs include transaction fees, advertising for a buyer or seller, drafting contracts for the transaction, valuations made to calculate the gain for the transaction, and a portion of the pooled cost of the tokens.

However, if you buy the same type of token on the same day you sell them, or within 30 days after, you do not pool the cost of the tokens you bought. The rules for calculating the cost in this situation are the same as for shares, applying the "Bed and Breakfast" rules. The gain or loss on the disposal is the difference between the net disposal proceeds and the acquisition cost.

For each token pool, you must keep separate records for every transaction, including the type of token, date of disposal, number of tokens disposed of, number of tokens remaining, the value of the tokens in GBP, bank statements, and the pooled cost before and after the disposal.

(3) Inheritance Tax

Crypto assets are considered part of an estate for Inheritance Tax purposes. The location (situs) of the crypto assets is typically determined by the tax residency of the beneficial owner.

3.1.2 Personal Tax Reporting Rules

In May 2025, new guidance from HMRC stipulated that individuals must provide personal information to crypto asset service providers before the reporting rules take effect on January 1, 2026. This rule applies to all service providers that allow the purchase, sale, transfer, or exchange of crypto assets, including those based outside the UK but servicing UK users. It also requires individuals to keep detailed records, including token type, acquisition date, acquisition cost, disposal date, disposal proceeds, fees, wallet addresses, etc.

From January 1, 2026, the UK will introduce reporting rules for crypto asset service providers based on the OECD's Cryptoasset Reporting Framework (CARF). Crypto asset service providers will collect and report user and transaction data to HMRC. The first report is due to HMRC by May 31, 2027, covering the period from January 1, 2026, to December 31, 2026.

3.1.3 Trends in Personal Tax Regulation

HMRC sent out up to 65,000 warning letters to crypto asset investors in the 2024-2025 tax year, urging them to pay any outstanding taxes before a formal investigation is launched. This number is more than double the 28,000 letters sent in the previous year, indicating that UK tax authorities are strengthening their oversight of crypto asset taxation.

3.2 Tax Rules for Businesses

Companies must pay Corporation Tax on their profits and gains. Partnerships or limited liability partnerships (LLPs) are tax-transparent, and their members must pay Corporation Tax on their share of the partnership's profits and gains (if they are a company). HMRC does not consider any current type of crypto asset to be currency. Any Corporation Tax law that applies only to currency does not apply to tokens or other types of crypto assets.

3.2.1 Application of Tax Rules

(1) Part 5 of the Corporation Tax Act 2009: Loan Relationships Rules

Simply acquiring a token does not involve a loan relationship, so the loan relationship rules do not apply. If a token has been provided as security for a normal money loan, a loan relationship exists, and the loan relationship rules apply whether the company is the debtor or the creditor.

(2) Part 8 of the Corporation Tax Act 2009: Intangible Fixed Assets Rules

If a token is an "intangible asset" for accounting purposes and is held for continuous use in the business, a company accounting for the token as an intangible asset may be taxed under the Corporation Tax rules for intangible fixed assets.

3.2.2 Situations Where Corporation Tax is Due

If a company holds tokens as an investment, it is liable to pay Corporation Tax on any gains it makes when it disposes of them. If a sole trader holds tokens as an investment, they are liable to pay Capital Gains Tax on any gains they realize. If a partnership or LLP holds tokens as an investment, its members are liable to pay Corporation Tax (if a company) or Capital Gains Tax (if an individual) on any gains they realize.

If a company gifts tokens to another company not in the same group, or to an individual or other entity, the company making the disposal must calculate the fair market value of the tokens it gifted and use this to calculate the taxable gain. The recipient is treated as acquiring the crypto assets at their fair market value at the time of the gift.

If a company retains beneficial ownership of the tokens throughout a transaction, no disposal occurs. Examples include moving tokens between public addresses beneficially controlled by the company. Using a "mixer" or similar service where the company receives back the same type of token it put into the transaction also does not constitute a disposal. If a company puts token A into a transaction and receives token B, this constitutes a disposal.

If a taxpayer donates tokens to a charity, they do not need to pay Corporation Tax on any gains that have accrued, unless they have made a "tainted donation" or realized a gain by selling the tokens to the charity for more than their acquisition cost.

3.2.3 Calculation of Corporation Tax Chargeable Gains

The calculation of chargeable gains for Corporation Tax uses the pooling rules (same as for individual Capital Gains Tax), but with the following exceptions:

If a company acquires the same type of token on the same day it disposes of them, the disposal is matched with the tokens acquired that same day, in priority to any tokens held in the existing pool.

If a company acquires tokens that would otherwise create or be added to a pool, but disposes of the same type of token within 10 days, the disposal is matched against acquisitions made within the previous 9 days, in priority to any tokens held in the existing pool. If multiple acquisitions occur during this period, they are applied on a "first in, first out" (FIFO) basis.

4. Outlook for the UK's Crypto Asset Tax System

The UK's current tax rules treat crypto assets the same as other assets, imposing an equal tax on economic value regardless of the form. This reflects the UK government's general recognition of crypto assets as assets, focusing on their economic substance. In response, crypto asset investors also need to clearly recognize the asset nature of crypto assets, understand the tax rules, clarify their potential tax liabilities, and strengthen their self-review and proactive disclosure of crypto asset tax information to avoid tax evasion.

The recent warning letters from HMRC already demonstrate its strict regulatory stance on crypto asset taxation. In 2026, the UK's adoption of the OECD's Cryptoasset Reporting Framework (CARF) will mean a large-scale flow of crypto asset transaction information, both within the UK and internationally. As HMRC gains access to more data, it will likely intensify its tax crackdown on crypto asset investors. It will become increasingly difficult for those who have not yet declared their capital gains to avoid the tax authority's attention, and offshore tax evasion will also become a key focus for the authorities.

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