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For UK-based cryptocurrency traders, realising significant profits is often followed by a daunting question: how much tax will I owe? When you sell, trade, or spend your crypto, any profit is potentially subject to Capital Gains Tax (CGT). However, by understanding the rules and utilising government-backed schemes like the Enterprise Investment Scheme (EIS) and Seed Enterprise Investment Scheme (SEIS), you can legally reduce your bill.
Do be aware that tax treatment depends on individual circumstances and may be subject to change. The latest information on tax relief schemes can be found on the HMRC website. Consult a registered financial advisor for advice specific to your personal circumstances.
When do you pay capital gains tax on crypto?
Simply buying and holding ("HODLing") crypto does not trigger a tax event. The charge to capital gains tax arises when you make a "disposal" of your crypto assets. For cryptocurrencies, a disposal includes:
Selling crypto for fiat currency (e.g., selling Bitcoin for British Pounds).
Trading one cryptocurrency for another (e.g., swapping Ethereum for Solana).
Using crypto to pay for goods or services.
Gifting crypto to another person (unless it's to your spouse or civil partner).
For the 2025/2026 tax year, the annual CGT allowance is £3,000. Gains above this are taxed at 10% for basic rate taxpayers and 20% for higher rate taxpayers.
How to calculate your crypto capital gain
The basic calculation is the same as for other assets, but the details are crypto-specific.
Value at Disposal−(Allowable Costs)=Capital Gain
Allowable costs are essential for reducing your taxable profit. For crypto, these include:
The original purchase price of the crypto.
Transaction fees paid on an exchange or network (gas fees).
Costs associated with calculating your gains, such as a subscription to crypto tax software.
HMRC requires UK traders to use a "share pooling" method. This means all your holdings of a specific token (e.g., all your Bitcoin) are treated as a single asset pool. You calculate an average cost for all the tokens in the pool, which is then used to determine the cost basis when you sell some of them.
Worked example: basic calculation
Let's imagine a trader, Alex, makes a single large sale in the tax year.
Alex sells Ethereum for: £70,000
Average cost basis of the ETH sold: £20,000
Transaction fees for the sale: £200
First, calculate the gain:
£70,000 (Sale Price) − (£20,000 + £200) (Costs) = £49,800 (Gain)
Next, apply the annual allowance:
£49,800 (Gain) − £3,000 (Allowance) = £46,800 (Taxable Gain)
Assuming Alex is a higher-rate taxpayer, the CGT bill would be:
£46,800 × 0.20 = £9,360
Strategies for reducing your crypto CGT bill
1. Utilise losses to offset gains
If you have made losses on some crypto disposals, you can use these to offset your gains before calculating your tax bill. Losses can be carried forward indefinitely if they are not used in the current tax year.
2. Transfer to a spouse or civil partner
You can transfer crypto assets to your spouse or civil partner without triggering a CGT event. This allows you to utilise both of your annual allowances (£6,000 in total for 2025/26) and potentially take advantage of a lower tax band if your partner is a basic rate taxpayer.
3. Reinvesting in EIS and SEIS schemes
This is a powerful strategy for significantly reducing or deferring your CGT bill. The Enterprise Investment Scheme (EIS) and Seed Enterprise Investment Scheme (SEIS) are designed to encourage investment into small, growing UK companies.
EIS Deferral Relief: By reinvesting a capital gain into an EIS-qualifying company, you can defer the CGT payment. The tax from your crypto gain is not payable until you sell the EIS shares. If you hold them until death, the CGT liability is extinguished entirely.
Worked example: using EIS deferral relief
Using Alex's £49,800 gain, which created a £9,360 tax bill.
Alex reinvests the full gain of £49,800 into an EIS-qualifying company.
The CGT bill of £9,360 is deferred. He does not have to pay it now. The liability is effectively frozen and will only become payable when he sells the EIS shares.
Additional Benefit: Alex also gets 30% income tax relief on his investment.
£49,800×0.30=£14,940(Income Tax Reduction)
SEIS Reinvestment Relief: SEIS offers even greater benefits for those willing to invest in younger, seed-stage companies. If you reinvest a gain into an SEIS-qualifying company, 50% of the reinvested gain is completely exempt from CGT.
Worked example: using SEIS reinvestment relief
Again, using Alex's £49,800 gain.
Alex reinvests the full gain of £49,800 into an SEIS company.
SEIS Reinvestment Relief allows Alex to claim 50% of this gain tax-free, provided he has also claimed income tax relief against his investment.
£49,800 × 0.50 = £24,900 (Tax-Free Gain)
His taxable gain will be halved to £24,900. After his £3,000 allowance, the taxable portion is £21,900.
The new, reduced CGT liability is:
£21,900×0.20=£4,380
This strategy reduces his immediate CGT bill from £9,360 to £4,380. On top of this, he also receives 50% income tax relief on his investment (£24,900), creating a powerful double benefit.
While these schemes offer superb tax advantages, it's crucial to remember that both crypto and EIS/SEIS investments are high-risk. Always seek independent financial advice before making any investment decisions.
