Lesson 5 — The UK framework: HMRC Cryptoassets Manual + Section 104
HMRC has built a comprehensive Cryptoassets Manual with detailed treatment for nearly every common scenario. Today: the working framework for UK taxpayers.
The UK's crypto tax treatment is well-documented via HMRC's Cryptoassets Manual — one of the most detailed publicly-available national crypto tax guides anywhere. The mechanics are Section 104 pooling for capital gains, ordinary-income treatment for income receipt events, and specific rules for the most common DeFi patterns. This lesson is the working framework for UK individual taxpayers.
**Cryptoassets are 'chargeable assets' for CGT.** Per the HMRC Cryptoassets Manual, individual crypto disposals trigger Capital Gains Tax. Income receipt (staking, mining, airdrops in some cases, employment) is Income Tax. The default is investment-asset treatment for individuals; 'trading' status (which would shift to Income Tax for disposals) applies in narrow cases for very high activity and would require demonstration that crypto activity constitutes a trade or business.
**Section 104 pooling.** All units of the same cryptoasset are pooled at running average cost. Disposals match against the pool. Two special rules: the **same-day rule** matches disposals against same-day acquisitions before the pool; the **30-day rule (bed-and-breakfasting)** matches disposals against acquisitions within the following 30 days. The 30-day rule blocks loss-harvesting by immediately re-buying — UK taxpayers cannot mechanically reset their basis as US taxpayers can.
**The CGT annual exemption.** UK individuals have an annual CGT exemption that has been progressively reduced — £6,000 for 2023-24, £3,000 for 2024-25, and remaining at £3,000 for 2025-26. Net gains within the exemption are tax-free. Gains above the exemption are taxed at 10% (basic-rate income band) or 20% (higher- and additional-rate bands). These are crypto-specific 2025-26 figures — confirm current values when filing.
**Income events.** Staking rewards, mining rewards, employment in crypto, and certain types of airdrops are Income Tax events at fair market value upon receipt. The income forms part of your normal taxable income. Subsequent disposal of those tokens is a separate CGT event against the income-recognised basis.
**Airdrops — HMRC's split treatment.** HMRC distinguishes airdrops received 'in return for, or in expectation of, a service' (income — taxable as miscellaneous income or trading receipt) from airdrops that are unsolicited and unconnected to any service ('windfall' — typically not income at receipt but CGT applies at disposal with zero base cost). The distinction is non-trivial: completing a faucet task or interacting with a protocol that subsequently airdrops you is closer to 'in expectation of service' than a token simply appearing in your wallet. Practical reality: most users treat airdrops as income at FMV because the documentation burden of proving 'unsolicited windfall' is high. A tax professional can advise on specific airdrop characterisation.
**DeFi guidance (DeFi Manual update).** HMRC published specific DeFi guidance in 2024 addressing common patterns. Highlights: lending/borrowing crypto via a DeFi protocol is generally a disposal at the time you lend (because you transfer ownership of the underlying token); LP-token mints are disposals of the deposited tokens; staking rewards remain income at receipt. The guidance is more conservative than some other jurisdictions — UK DeFi users typically face more taxable events than US users for the same activity. The HMRC consultation on a simpler regime continues but no rule has been finalised as of mid-2026.
**Self-assessment and reporting.** UK crypto activity is reported through the Self Assessment tax return (SA100), with CGT-specific reporting on supplementary pages (SA108). The deadline for paper filing is 31 October following the tax year; online filing is 31 January. Penalties for late filing or payment apply. The 'Cryptoassets' section of HMRC's guidance walks through the SA108 reporting in detail.
**NFT treatment.** HMRC treats NFTs broadly as cryptoassets for CGT purposes, with the same disposal rules. Specific issues arise around NFTs as 'wasting assets' (some collectible NFTs might fall under this), royalties on secondary sales (income for the creator), and NFT-Fi activities. The treatment is still developing; specific situations should involve a tax professional.
**Tax-loss harvesting in the UK.** The 30-day rule blocks immediate re-buy after a loss. Strategies to crystallise losses: hold for the 30-day washout period before re-establishing, transfer to a spouse before disposal (interspousal transfers are zero-gain/loss and shift basis), use the partial-share approach (sell some now, sell more later). UK loss-harvesting is materially harder than US loss-harvesting and requires planning.
Example
UK taxpayer 2025-26 tax year. (a) Bought 2 ETH in 2023 at £3,000 average — Section 104 pool: 2 ETH at £3,000 basis each. (b) Sold 1 ETH in September 2025 at £4,500 — disposal against pool basis £3,000 = £1,500 gain. Pool now 1 ETH at £3,000. (c) Bought 1 ETH in October 2025 at £3,500 — within 30 days of the September sale, so the September sale matches against this October acquisition instead of the pool. Result: September sale £4,500 vs £3,500 basis = £1,000 gain; pool unchanged (2 ETH at £3,000 average). The original Section 104 calculation produced £1,500 of gain; the 30-day rule converted it to £1,000 of gain and preserved more pool basis for future disposals — but only because the user happened to buy back. (d) Received £400 of staking rewards — £400 income on the Self Assessment, separate from CGT. (e) Total CGT for the year: £1,000 (covered by the £3,000 annual exemption — net taxable £0). (f) Income from staking: £400 added to ordinary income.
Common mistakes
- Selling at a loss and immediately re-buying. The 30-day rule blocks the loss harvest in the UK.
- Ignoring the annual CGT exemption. £3,000 of net gain is tax-free for 2025-26 and should be utilised.
- Treating all airdrops as windfalls. HMRC's split between 'in expectation of service' and 'unsolicited' is real and conservative treatment is income at FMV.
- Forgetting the Self Assessment deadline. Late filing has automatic penalties; online filing is 31 January.
- Mishandling LP token mints. HMRC's DeFi Manual treats these as disposals — easy to miss because no fiat moves.
- Treating crypto-to-crypto swaps as non-taxable. They are CGT disposals under UK rules.
Safety warning
This lesson covers HMRC's framework at a working level. Consult a qualified UK tax professional (ICAEW, ACCA, or CIOT chartered) for any consequential decisions. The Cryptoassets Manual is comprehensive but HMRC's interpretation of new DeFi patterns sometimes lags the technology.
Check your understanding
You are a UK tax resident in tax year 2025-26. In September you sell 1 ETH for £4,500 (Section 104 pool basis £3,000), then in early October — within 30 days — buy 1 ETH back at £3,500. Under HMRC's matching rules, what is your reportable gain on the September disposal?
Key terms covered
Sources & further reading
- Primary
- Primary
- Primary
- Secondary
We prioritise primary sources. Where a topic moves quickly (regulation, security incidents), we re-check sources on the cadence shown by the page's "Next review" date.