Wondering whether you can avoid crypto taxes in the UK?
While trying to hide your cryptocurrency from the HMRC is a bad idea, savvy investors use legal tax-saving strategies to save money.
In this guide, we’ll break down 10 simple ways to legally reduce your cryptocurrency tax bill.
How is cryptocurrency taxed?
In the United Kingdom, cryptocurrency is subject to capital gains and ordinary income tax.
For more information, check out our complete guide to how cryptocurrency is taxed in the UK.
Can I hide my cryptocurrency from the HMRC?
Because cryptocurrency transactions are pseudo-anonymous, many investors assume that it’s easy to hide their crypto income from the HMRC.
This is false.
The HRMC regularly uses its statutory powers to collect customer information from major exchanges operating in the United Kingdom. This information includes first and last names, addresses, transaction frequency, and the total value of customer crypto holdings.
In 2024, it was reported that the HRMC used this information to send ‘nudge letters’ about unpaid crypto tax to more than 8,000 investors.
10 ways to avoid crypto taxes in the United Kingdom
While there’s no way to legally evade taxes, here are some strategies that can help you legally reduce your tax bill.
1. Hold your cryptocurrency
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The easiest way to avoid crypto taxes is to simply hold your cryptocurrency for the long-term.
Remember, there’s no taxable event for holding your cryptocurrency or transferring it between different wallets that you own.
2. Take advantage of tax-free thresholds
For most taxpayers in the UK, the first £3,000 of capital gains income that you earn is completely tax-free.
Remember, your tax-free threshold drops if your total income exceeds £100,000. If your income exceeds £125,140, you will not receive any tax-free allowance.
3. Take profits in a low-income year
The United Kingdom has a progressive tax system. Generally, the higher your income, the higher taxes you’ll pay.
As a result, many investors choose to dispose of their crypto-assets in years where their income is low. For example, you can potentially reduce your tax burden if you sell your crypto in a year when you are studying in university full-time.
4. Harvest crypto losses
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While losing money is never the goal, selling your cryptocurrency at a loss comes with serious tax benefits.
Cryptocurrency losses can be used to offset gains from cryptocurrency, stocks, and other assets, a tactic known as tax loss harvesting.
It’s important to remember that you need to ‘realise’ your loss to claim it on your return. Examples of realising your loss include selling your crypto, trading it for another cryptocurrency, or using it to make a purchase.
5. Make a crypto donation
Donating cryptocurrency to a registered charity without receiving anything in return is considered tax-deductible. You can write off the fair market value of your crypto at the time of the donation.
However, if the value of your crypto has increased since you originally received it, you will recognize a capital gain.
6. Gift crypto to a significant other
In the United Kingdom, gifting crypto to your spouse or civil partner is considered completely tax-free.
If your partner hasn’t taken full advantage of their tax allowance for the year, you could gift your crypto to them to minimise the tax liability of a disposal.
7. Hire a tax professional
If you’re a frequent cryptocurrency trader, you can consider enlisting the help of a tax professional. While hiring an accountant can be expensive, investors often find that the tax-savings are well worth the cost.
8. Invest in a SIPP
Self-Invested Personal Pensions (SIPP) are designed to help you build wealth while minimising your tax burden. For all the contributions you make to your SIPP, the HRMC pays 20% in tax relief (higher tax rates are subject to additional tax relief).
At this time, you can’t hold Bitcoin and other cryptocurrencies in a SIPP. However, you can invest in the VanEck Vectors Digital Assets Equity UCITS ETF, which is designed to track the price of companies with significant exposure to crypto and blockchain.
9. Relocate to a low-tax country
While it may seem like an extreme step to take, some crypto investors choose to relocate to a country with more favourable crypto tax rates to save money.
In Germany, gains on cryptocurrency disposed of after a year or more are considered completely tax-free. Other popular crypto tax havens include Singapore and the United Arab Emirates.
10. Use crypto tax software
A mistake on your tax return can be expensive. In cases where inaccuracies have occurred because the taxpayer has been careless, the HRMC can impose a penalty between 0-30% of the tax liability.
That means it’s important to keep detailed records of your transactions across all of your wallets and exchanges.
If you’re looking for an easy way to generate a crypto tax report and identify your tax-loss harvesting opportunities, crypto tax software can help. Simply plug in your wallets and exchanges, import your transactions, and let the platform do the hard work for you!
Once you’re done, you can export your crypto tax report to your tax platform of choice or send it off to your accountant!
Frequently asked questions
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