Taxation of Bitcoin and other similar cryptocurrencies

An overview of the UK tax treatment of Bitcoin and similar cryptocurrencies.

There has been increasing general interest in cryptocurrencies, such as Bitcoin, and the technology behind such currencies in recent months. Naturally, much of this focus has been on the valuation of such currencies - and the profits or losses that individuals holding such currencies might make. However, what is the tax treatment of Bitcoin and other cryptocurrencies? Are gains subject to tax in the UK? Has HM Revenue & Customs (HMRC) issued any guidance on their treatment?


Cryptocurrencies are a type of digital money. The first cryptocurrency was Bitcoin but since its release in 2009, there are now a proliferation of different types. Cryptocurrencies can be bought or sold with other currencies, used to purchase goods from sellers who are willing to accept cryptocurrencies as payment, make investments in various assets and are being retained as investments themselves. Given the unique proprietary features of Bitcoin, there appears to be a degree of uncertainty and ambiguity as to whether Bitcoin and other similar cryptocurrencies would, legally, qualify as property for English law purposes. However, the better view appears to be that the English courts would recognise the ownership rights which a person has in Bitcoin, despite any formal difficulties in the application of traditional features of English law.

The technology which allows cryptocurrencies to work is known as "blockchain technology". The blockchain is a database containing evidence of transactions between different users. Multiple networked computers hold all or part of a sequence of information, which is arranged into "blocks". The information is sequenced in chronological order and added to the blockchain by the network without reference to users’ identities or personal details. The updated blockchain is then saved so rapidly across the network that it is almost impossible for a hacker to change the information contained on every single computer on the network in order to manipulate a transaction (assuming there are no vulnerabilities in the software). This effectively means that once a transaction has been recorded, it cannot be edited or deleted. It therefore acts as a digital ledger which is secure and usually anonymous.

Taxation of currencies generally

Where a person trades in foreign currencies on a regular basis then the profits of that trade may be subject to tax as trading profits (and within the scope of income tax or corporation tax as appropriate).

In the absence of trading, all forms of property, other than sterling, are assets for capital gains tax (CGT) purposes. As such, foreign currency is an asset for capital gains tax purposes and the disposal of foreign currency may, therefore, give rise to chargeable gains or allowable losses. In addition to the sale of foreign currency for sterling, there is also a disposal if foreign currency is used to purchase an asset, for example.

From a VAT perspective, transactions, including negotiation, concerning currency, bank notes and coins used as legal tender are exempt from VAT, with the exception of collectors' items, ie gold, silver or other metal coins or bank notes which are not normally used as legal tender or coins of numismatic interest.

The taxation of profits on cryptocurrencies

In the UK, HMRC has provided guidance on the tax treatment of Bitcoin and other cryptocurrencies in Revenue & Customs Brief 9/2014. The guidance recognises three possible treatments for profits or gains made on cryptocurrencies:

  • trading profits which will be subject to income tax
  • highly speculative transactions which are treated as gambling will not subject to income tax, and
  • capital gains which will be subject to capital gains tax.

Where an individual regularly buys and sells Bitcoin, the individual may be trading in Bitcoin and, as such, subject to income tax on the profits of the trade (or may accrue trading losses). Where losses arise, HMRC are likely to carefully consider if the badges of trade are present before allowing loss relief. In particular, the courts have previously given guidance that the courts should be wary of awarding “trading” status to an individual speculating in financial instruments and that the prima facie presumption should be that he or she is not. The matter if further complicated by the possibility that transactions may be regarded as so highly speculative that the activity is akin to gambling or betting, such that any profits are not taxable as trading profits and any losses cannot be offset against other taxable profits.

Where a person is investing in Bitcoin, despite the formal legal uncertainty as to its nature, HMRC takes the view that Bitcoin should be treated as property and a chargeable asset for CGT purposes. Accordingly, where a person buys and sells Bitcoin as an investment or buys Bitcoin and uses it as payment for other transactions, there will be CGT consequences to consider. Since Bitcoin will be treated as an asset for CGT purposes, the buying and selling of Bitcoin will give rise to capital gains or capital losses as appropriate. Equally, where Bitcoin is used to buy other goods or services, the use of the Bitcoin as a currency will give rise to a disposal of the Bitcoin with taxable gains or losses arising.

Where Bitcoin is held by a company, similar principles apply to determining if the company is investing or trading in the cryptocurrency. Therefore, a company’s exchange gains will be taxable and losses deductible following the general rules on currencies and loan relationships. As such, a company may be taxed based on exchange movements determined in the company’s accounts even in the absence of any disposal of Bitcoin.

Remittance basis

Where a person is resident but not domiciled in the UK and claim the remittance basis of taxation, income and gains which have a source outside the UK are only taxed if they are remitted to the UK. Assuming that Bitcoin or other cryptocurrency is an intangible asset for CGT purposes, gains will be treated as arising in the UK if the asset is subject to UK law. Most cryptocurrencies are not governed by UK law, and therefore gains should not be treated as UK gains. This means that any gains on disposals of Bitcoin should not be taxed if the proceeds are kept outside the UK.

However, if the individual is trading in Bitcoin in the UK, then the profits will be treated as arising in the UK and subject to UK tax.


The European Court of Justice has held that Bitcoin and other cryptocurrencies should be treated in the same way as other currencies for VAT purposes. Therefore, where a person pays consideration for the acquisition of Bitcoin, there is a supply that is exempt from VAT under Article 135(1)(e) of the VAT Directive, which exempts "transactions, including negotiation, concerning currency, bank notes and coins used as legal tender".

HMRC’s guidance in Revenue & Customs Brief 9/2014 goes further, however, and confirms the VAT treatment of a number of other features of Bitcoin and other cryptocurrencies:

  • income received from Bitcoin mining activities will generally be outside the scope of VAT on the basis that the activity does not constitute an economic activity for VAT purposes because there is an insufficient link between any services provided and any consideration received
  • income received by miners for other activities, such as for the provision of services in connection with the verification of specific transactions for which specific charges are made, will be exempt from VAT under Article 135(1)(d) of the VAT Directive as falling within the definition of "transactions, including negotiation, concerning deposit and current accounts, payments, transfers, debts, cheques and other negotiable instruments", and
  • charges (in whatever form) made over and above the value of the Bitcoin for arranging or carrying out any transactions in Bitcoin will also be exempt from VAT under Article 135(1)(d).


It should be noted that HMRC’s guidance recognises that cryptocurrencies and the technologies behind them will continue to evolve and that HMRC will need to continue to evaluate their tax treatment and will issue further guidance as appropriate. Indeed, whilst reliance may generally be placed on HMRC guidance, an investor or user of any such novel currencies should take care to consider the nature of the currency on a case by case basis.

This document (and any information accessed through links in this document) is provided for information purposes only and does not constitute legal advice. Professional legal advice should be obtained before taking or refraining from any action as a result of the contents of this document.