Cryptocurrency, compliance

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Palace of Westminster, London, UK Photo: Manuele Sangalli, via Unsplash

HMRC's take on crypto gains? It's complicated. While you're watching your staked coins generate rewards, there's a catch most people don't see coming - you might owe tax before seeing a penny in your bank account.

Welcome to UK crypto taxation, where old rules struggle to keep up with new technology. The current system forces digital assets into outdated tax categories, leading to confusing situations—like staking rewards potentially being taxed twice.

This leaves investors in a tough spot: they may have to sell crypto just to pay taxes on gains they haven’t realized, but ignoring the rules risks penalties from HMRC. As crypto evolves rapidly, the tax system lags behind, making things unclear for investors.

Let’s explore the main challenges, the issues investors face, and why the UK urgently needs clearer, updated crypto tax rules.

Double Taxation: A Real Concern

The possibility of double taxation is a legitimate issue for UK crypto holders. Under current rules, staking rewards are treated as income when received, meaning they’re subject to Income Tax. Later, when you sell or exchange those rewards, you could also face Capital Gains Tax (CGT). This means the same funds are taxed twice—once as income and again as a capital gain. For long-term stakers, this creates a frustrating and potentially costly situation.

Lack of Clear Guidance

The need for updated, specific tax guidance is hard to ignore. While HMRC has issued a crypto manual, it doesn’t fully address newer activities like staking or DeFi (Decentralized Finance). This lack of clarity leaves investors guessing about their obligations, which can lead to inconsistent reporting or even penalties. For example, staking rewards are often treated as income, but the exact timing and valuation of these rewards can be ambiguous, especially in volatile markets.

Read More: How to buy Crypto using Ledger Live API

Crypto as a Non-Cash Asset

One of the biggest challenges is that crypto isn’t cash. Taxing staking rewards as if they’re immediately spendable creates a disconnect. Many investors don’t convert their rewards into fiat currency, meaning they’re taxed on unrealized gains. This becomes a problem when the value of the crypto drops before it’s sold, leaving investors with a tax bill that exceeds the actual value of their holdings. It’s a system that doesn’t reflect the realities of digital assets and can create unnecessary financial strain.

The Regulatory Gap

The rapid evolution of blockchain technology has left regulators struggling to keep up. HMRC and the FCA (Financial Conduct Authority) are working to adapt, but the pace of innovation often outstrips their efforts. This gap between regulation and reality has led to growing calls for policies that are tailored to the unique nature of crypto. Without these updates, the current framework risks stifling innovation and discouraging participation in the crypto economy.

Staking Rewards: A Case for Fairer Taxation

Staking rewards are a prime example of where the tax system could be improved. Treating them as taxable income at the moment they’re earned doesn’t align with how similar passive income streams, like interest, are taxed. A more balanced approach might involve taxing staking rewards only when they’re sold or converted into fiat. This would reduce the risk of double taxation and make the system more equitable for investors.

Read More: Setting Up Your Crypto Wallet: A Complete Guide

The DeFi Challenge

While HMRC, FCA, and HM Treasury provide guidelines for basic crypto activities, they've yet to fully address the complexities of decentralized finance (DeFi). Activities like flash loans, yield farming, liquidity mining, and synthetic derivatives operate in a regulatory grey area. Current UK frameworks mainly focus on traditional crypto trading and investing, leaving many DeFi users uncertain about their tax obligations and compliance requirements.

Tips to Handle Your Crypto Taxes in the UK (2025)

1. Track Everything

Tax Software: Use Koinly or CryptoTaxCalculator
Record All:
- Trades and swaps
- Transfers between wallets
- NFT transactions
- Mining income
- Staking rewards

2. Taxable Events (2025)

Read More: Why Hardware Wallets Are Crucial for Safeguarding Your Crypto

3. Tax Reduction Strategies

Allowances

Capital Gains allowance: £13,500 (2024/25)
Trading allowance: £1,000

Methods

Hold for 12+ months
Offset losses against gains
Strategic tax year planning

4. 2025 Updates

New Regulations

Stricter exchange reporting
Updated DeFi guidelines
Stablecoin regulations
NFT classification changes

5. Common Pitfalls

❌ Overlooking small trades
❌ Missing airdrops
❌ Poor record-keeping
❌ Mixing personal/business crypto

6. Getting Help

Resources

Tax calculation apps
Crypto-specialist accountants
HMRC guidance
UK crypto communities

Read More: The Role of Flash Loans in DeFi Debt Management

Later Edit:

Summary of HMRC’s New Crypto Rules (from January 1, 2026):

Crypto platforms must collect and report users’ personal and transaction details to HMRC.
Applies to all crypto transactions (buy, sell, exchange) and both individuals and businesses.
Non-compliance can mean fines up to £300 per user.
Profits from crypto are subject to capital gains tax (CGT) or income tax.
You must declare gains above £3,000/year on your tax return.
HMRC will use this data to check for tax avoidance and launch investigations if needed.

Bottom line:
From 2026, crypto users and businesses in the UK will have much less privacy, and HMRC will have stronger tools to enforce crypto tax compliance.

A Call for Change

The crypto community’s frustrations are justified—UK tax rules still try to fit new technology into outdated systems. While HMRC has made some progress, clear and fair crypto-specific guidelines are still lacking.

Investors remain cautious and uncertain, especially around issues like staking rewards. Until regulations improve, risks of over-taxation and financial strain persist.

A modern, tailored approach is needed to support innovation and give investors the clarity they deserve.

Important Note: This guide is for informational purposes. Consider consulting a tax professional for your specific situation.

About the Author

Razvan Chiorean is a published author of compoundY and a cutting-edge researcher in quantum computing, AI-ML, and blockchain technology. Through his #AIResearch handle, Razvan continues to conduct research, blog, and educate, bridging cultures and inspiring technological progress while consistently sharing his findings and insights. He collaborates with leading tech companies, contributes to open-source projects, and is dedicated to fostering ethical standards and inclusivity in technology, ensuring a future where advancements benefit everyone.

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Reference:

1. New Bill Introduced in Parliament to Clarify Crypto’s Legal Status

New bill introduced in Parliament to clarify crypto’s legal status

2. Property (Digital Assets etc.) Bill

Property (Digital Assets etc.) Bill: factsheet

This bill clarifies the legal status of digital assets, such as cryptocurrencies and NFTs, as personal property under English and Welsh law.

3. Cryptoasset Reporting Framework and Common Reporting Standard (HMRC)

Cryptoasset Reporting Framework and Common Reporting Standard

This document outlines the UK’s implementation of the OECD’s Cryptoasset Reporting Framework (CARF) and amendments to the Common Reporting Standard (CRS) to address tax compliance.

4. PwC - Navigating the Global Crypto Landscape 2024

Navigating the Global Crypto Landscape 2024 | PwC

This report explores advancements in global digital asset regulation, including the EU’s MiCA framework and regulatory developments in over 40 jurisdictions.

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