HMRC Cryptoassets: UK Tax Treatment for Practitioners — 2026 Guide

HMRC's Approach to Cryptoasset Taxation

HMRC's position on cryptoassets is set out in its Cryptoassets Manual (CRYPTO), first published in 2019 and updated progressively to address DeFi, NFTs, and the emerging CARF reporting framework. HMRC does not treat cryptoassets as currency or money. Instead, cryptoassets are treated as property, meaning disposals are subject to Capital Gains Tax (CGT) for individuals and Corporation Tax on chargeable gains for companies.

The key practical implications for practitioners advising clients with cryptoasset exposure are: correctly classifying transactions as capital or income, calculating gains using the Section 104 pool rules, advising on the treatment of DeFi activities, and preparing for the incoming Cryptoasset Reporting Framework (CARF) obligations.

The Badges of Trade: Capital vs. Income

Whether cryptoasset activity generates capital gains or trading income depends on the application of the badges of trade — the same nine factors HMRC applies to any potential trading activity. The badges most relevant to cryptoassets are:

Frequency and volume of transactions: A client who regularly buys and sells cryptoassets, particularly with short holding periods and high turnover, is more likely to be regarded as trading. Occasional long-term investments are more likely to be capital in nature.

Profit-seeking motive: Where the primary purpose of acquiring cryptoassets is resale at a profit rather than long-term investment or use, this points towards a trading characterisation.

Organisation of activity: Using automated trading bots, running arbitrage strategies across exchanges, or operating dedicated trading infrastructure suggests a business-like approach to crypto activity.

Connection to existing trade: For clients in financial services, payments, or technology, cryptoasset activity may be more readily characterised as connected to an existing trade.

In practice, HMRC takes the view that most individuals investing in cryptoassets are investors rather than traders, and that the default characterisation is capital. However, where the facts point clearly to a trading operation, income tax rates apply and the distinction is significant.

Section 104 Pool: Calculating Capital Gains

For most individual cryptoasset investors, gains are calculated using the Section 104 pool rules under TCGA 1992. Each type of cryptoasset (Bitcoin, Ether, etc.) forms its own Section 104 pool. The pool tracks the total number of tokens and the total allowable cost.

When a client disposes of cryptoassets, the allowable cost is calculated as: (number of tokens disposed of / total tokens in pool) × total pool cost. The gain is the disposal proceeds minus this allowable cost.

The same-day and 30-day matching rules also apply: disposals are matched first to acquisitions on the same day, then to acquisitions in the following 30 days (the "bed and breakfasting" rule), and then to the Section 104 pool. These matching rules prevent clients from manufacturing artificial losses by selling and immediately rebuying.

For practitioners, the practical challenge is often data quality. Clients frequently lack complete transaction records, particularly for assets held across multiple wallets and exchanges over several years. AI-assisted blockchain analytics tools (Chainalysis, CoinTracker, Koinly) can help reconstruct transaction histories, but practitioners should review AI-generated outputs rather than accepting them without independent verification.

DeFi: Lending, Staking and Liquidity Provision

Decentralised finance (DeFi) activities present some of the most complex tax questions in the cryptoasset space. HMRC's guidance treats the tax position of DeFi activities as highly fact-specific, but the following principles apply in most cases.

DeFi lending: Where a client lends cryptoassets through a DeFi protocol and receives interest-like returns, HMRC generally treats these returns as miscellaneous income under ITTOIA 2005 s687. The original transfer of cryptoassets into the lending protocol may also be treated as a disposal for CGT purposes if the client loses beneficial ownership of the assets — a position that depends on the specific structure of the protocol.

Staking: Staking rewards received for participating in proof-of-stake consensus mechanisms are generally treated as miscellaneous income at the time of receipt. The value at receipt forms the base cost for a future disposal.

Liquidity provision: Providing liquidity to automated market makers (AMMs) typically involves depositing two cryptoassets in exchange for liquidity provider (LP) tokens. HMRC may treat this as a disposal of the deposited assets. The receipt of LP tokens is a new asset at the value of the tokens received. Withdrawing liquidity reverses this treatment.

The de minimis issue — whether HMRC will pursue small DeFi income amounts — remains a practical concern. However, with the incoming CARF reporting obligations, transaction data will flow to HMRC automatically from participating exchanges and service providers, reducing the practical scope for non-disclosure.

NFTs

HMRC treats non-fungible tokens (NFTs) as cryptoassets subject to CGT on disposal. Each NFT is a distinct asset with its own base cost. The Section 104 pool rules do not apply because NFTs are not fungible — each token is unique and cannot be pooled with other tokens of the same type.

For clients who create and sell NFTs, the proceeds may be income if the activity constitutes a trade (applying the badges of trade analysis), or capital if the NFT is created as a one-off investment asset. For collectors, disposals are generally subject to CGT.

The Cryptoasset Reporting Framework (CARF)

The OECD's Cryptoasset Reporting Framework (CARF), adopted by the UK and expected to take effect from January 2026 for reporting, will require cryptoasset service providers (exchanges, wallets, DeFi platforms meeting the reporting thresholds) to collect and report user transaction data to HMRC. This data will be exchanged with other participating jurisdictions under automatic exchange of information (AEOI) arrangements.

CARF significantly changes the practical context for cryptoasset compliance. Practitioners should advise clients to review historical transactions and voluntarily correct any under-reported positions before CARF data becomes available to HMRC.

Frequently Asked Questions

How does HMRC treat cryptoassets for tax purposes?

HMRC treats cryptoassets as property, not currency. Disposals are subject to Capital Gains Tax for individuals (or Corporation Tax on chargeable gains for companies). The default position is that most individuals holding cryptoassets are investors rather than traders, making CGT the primary tax. The badges of trade determine whether activity rises to the level of trading income.

What is the Section 104 pool and how does it apply to cryptoassets?

The Section 104 pool (under TCGA 1992) is the method for calculating CGT on cryptoasset disposals. Each type of cryptoasset forms its own pool. The allowable cost for any disposal is proportionate: (tokens disposed of / total tokens in pool) × total pool cost. Same-day and 30-day matching rules apply before the pool calculation, to prevent artificial loss creation.

Are DeFi staking rewards taxable income?

Yes. HMRC generally treats DeFi staking rewards as miscellaneous income under ITTOIA 2005 at the point of receipt. The value at receipt forms the base cost for any future disposal. DeFi lending returns are similarly treated as income. The transfer of assets into a lending protocol may also trigger a CGT disposal if the client loses beneficial ownership.

How are NFTs taxed in the UK?

HMRC treats NFTs as cryptoassets subject to CGT on disposal. Because NFTs are unique and non-fungible, the Section 104 pool rules do not apply — each NFT has its own base cost. For clients who create and sell NFTs as a trade, proceeds may be income rather than capital. The badges of trade analysis determines which treatment applies.

What is the Cryptoasset Reporting Framework (CARF)?

CARF is the OECD's framework requiring cryptoasset service providers to report user transaction data to tax authorities. The UK has adopted CARF, with reporting expected to begin on 2026 transactions. CARF data will be automatically exchanged between participating jurisdictions, significantly increasing HMRC's visibility into cryptoasset activity. Practitioners should advise clients to review historical positions before CARF data flows to HMRC.

What CPD training do accountants need for cryptoasset advisory?

Accountants advising clients on cryptoassets need CPD covering: UK CGT treatment using the Section 104 pool; income characterisation under the badges of trade; DeFi lending, staking and liquidity provision treatment; CARF reporting obligations; and AML/KYC obligations under Schedule 7. Learnsignal's cryptoasset advisory CPD programme covers all of these areas and is accredited by CPA Ireland and ICAEW.

Do the same-day and 30-day rules apply to cryptoassets?

Yes. The same-day rule and the 30-day "bed and breakfasting" rule under TCGA 1992 apply to cryptoasset disposals in the same way as other capital assets. Disposals are matched first to same-day acquisitions, then to acquisitions in the 30 days following the disposal, and finally to the Section 104 pool. This prevents clients from generating artificial losses by selling and immediately rebuying the same cryptoasset.