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Recap HomeCrypto Tax Guide (Lite)HMRC Cryptoassets Manual
  • A Technical Guide to Cryptocurrency Tax for UK Individuals
    • What are Cryptoassets?
    • Who are Recap?
  • CRYPTOCURRENCY TAX
    • Do I Need to Pay Tax on my Cryptoassets?
    • Which Taxes Apply?
      • Capital Gains Tax (CGT)
      • Income tax
      • VAT
      • Inheritance tax
      • Stamp Duty
    • How Much Tax Will I Pay?
    • New HMRC DeFi Guidance
      • Overview of HMRC guidance
      • 1️⃣Is the Reward Income or Capital?
      • 2️⃣Is Beneficial Ownership (BO) transferred?
      • 3️⃣Consider the Tax Treatment
        • Staker/Lender/Collateral Provider
          • Income Rewards
            • BO transferred
              • ➡️At Point of Entry
              • ⬅️At Point of Exit
              • 💧On Liquidation
              • 💎On Receipt of Income Reward
              • Example 1A
              • Example 2A
            • BO not transferred
              • ➡️At Point of Entry
              • ⬅️At Point of Exit
              • 💧On Liquidation
              • 💎On Receipt of Income Reward
              • Example 1B
              • Example 2B
          • Capital Rewards
            • BO transferred
              • ➡️At Point of Entry
              • ⬅️At Point of Exit
              • 💧On Liquidation
              • 💎On Receipt of Capital Reward
              • Example 1C
              • Example 2C
            • BO not transferred
              • ➡️At Point of Entry
              • ⬅️At Point of Exit
              • 💧On Liquidation
              • 💎On Receipt of Capital Reward
              • Example 1D
              • Example 2D
        • Borrower
    • Investor or Trader?
      • Badges of Trade Limitations
      • HMRC Approach
      • Court Cases involving Financial Traders
    • Capital Gains Tax
      • Calculating the Capital Gains Position
      • Disposal proceeds
      • Disposals to Connected Parties
      • Allowable costs for CGT
        • Exchange fees
        • Forks - affect on allowable costs
      • Capital Loss Claims
    • Income Tax
      • Financial trading income
      • Miscellaneous Income
      • Employment income
    • Fair Market Valuation
  • TRANSACTION TYPES
    • 💷Selling Crypto for Fiat
    • 🔄Trading Crypto to Crypto
    • 🛍️Purchases using Crypto
    • 🎁Gifts
    • 💍Spouse Transfers
    • 🎗️Gifts to Charity, CASCs & Bodies for a National Purpose
    • 🎈Airdrops
    • 🤝Staking
    • 💸Transfers
    • 🍴Forks
    • ⛏️Mining
    • 👛Employment income
      • UK Employer
      • Overseas employer
      • National Minimum Wage (NMW)
    • 🚨Lost & Stolen Crypto
    • 🎲Gambling
    • 💧Liquidity Pools
      • Example - Liquidity pool
    • ⬆️Token Upgrades/Swaps
    • 🔮Cryptoasset derivatives (CFDs, Futures and Margin Trading)
    • 💼Crypto Loans
    • 🔄REPOS
    • 🪞Reflections Rewards
    • 👥Referral Income
    • 💳Cashback
    • 🎨NFTs (Non Fungible Tokens)
    • 🎮NFTs earned playing games
  • Record Keeping
  • Filing Your Self-Assessment
    • How to Register for Self-Assessment
    • How to Fill In the Tax Return
    • Submitting the Tax Return and Paying the Tax
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On this page
  • Staking with income reward
  • At point of entry
  • CGT disposal – principal tokens staked
  • CGT acquisition - ‘right to receive a future quantity of tokens’
  • At point of exit
  • CGT disposal – ‘right to receive a future quantity of tokens’
  • CGT acquisition – re-acquisition of principal tokens staked
  • On receipt of income reward
  • On sale of BTC for fiat

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  1. CRYPTOCURRENCY TAX
  2. New HMRC DeFi Guidance
  3. Consider the Tax Treatment
  4. Staker/Lender/Collateral Provider
  5. Income Rewards
  6. BO transferred

Example 1A

Tax position for staker where INCOME REWARDS received and there is a transfer of beneficial ownership

PreviousOn Receipt of Income RewardNextExample 2A

Last updated 3 years ago

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Staking with income reward

See our other staking examples to show the different tax positions of this same scenario:

  • - income reward - NO transfer of beneficial ownership

  • - capital reward - transfer of beneficial ownership

  • - capital reward - NO transfer of beneficial ownership

  • Bought 10 BTC for £100,000 in October 2020

  • Staked 10 BTC staked in March 2022 for 1 year, when worth £300,000

  • Staking reward of 5% received monthly in USDC

  • 10 BTC is un-staked in March 2023 when worth £200,000

  • No other acquisitions or disposals of BTC (assume matching rules not relevant for simplicity)

  • Assumed that beneficial ownership is transferred upon entry

  • The CGT (capital gains tax) free annual exemption is already used and the CGT rate is 20%, as income is more than £50,270

  • No redemption tokens are received upon staking; therefore a ‘right to receive a future quantity of tokens’ is treated as received

  • Sold 10 BTC for £500,000 fiat sterling in March 2024

At point of entry

CGT disposal – principal tokens staked

Capital gain of £200,000 (£300,000 less £100,000) realised in the 21/22 tax year, upon staking the 10 BTC.

£40,000 CGT (£200,000 at 20%) is payable by 31 January 2023.

CGT is payable despite the fact that the £300,000 value subjected to CGT is locked away and no proceeds have actually been received. If the 10 BTC will still be locked away in January 2023, alternative funding will be needed to pay the CGT to HMRC.

CGT acquisition - ‘right to receive a future quantity of tokens’

There is also an acquisition of an asset worth £300,000 at the point of entry. As nothing was actually received, this asset acquired is a ‘right to receive a future quantity of tokens’ and this ‘right’ has an acquisition cost of £300,000 for capital gains tax purposes. Upon exit from the yield generating activity, this right will be disposed of in exchange for a repayment of the principal 10 BTC staked.

At point of exit

CGT disposal – ‘right to receive a future quantity of tokens’

There is a capital loss of £100,000 in the 22/23 tax year, upon un-staking the 10 BTC. The disposal proceeds are £200,000, but the acquisition cost upon entry was £300,000. This capital loss of £100,000 in 22/23 cannot be carried back to reduce the £200,000 capital gain realised on entry in 21/22. Therefore the £40,000 CGT remains payable by 31 January 2023, even though the value of the BTC has dropped significantly in value. The £100,000 loss can only be set against capital gains in 22/23 and future years.

CGT acquisition – re-acquisition of principal tokens staked

The 10 BTC un-staked has a CGT acquisition cost of £200,000.

On receipt of income reward

HMRC guidance indicates this staking reward is an income reward (rather than capital). The indicators pointing to an income reward are:

  • the reward is known at time agreement made (ie 5% pa for one year)

  • the reward is paid periodically throughout the period of the staking (monthly)

  • the period of the lending is fixed and short-term (1 year fixed period)

Therefore the USDC tokens received monthly as the income rewards are subjected to income tax (treated as miscellaneous income) when they are received. The income is the sterling market value of the USDC at each date of receipt.

Let’s say each month’s reward receipt was worth £1,250, so the total income over the year was £15,000. If the taxpayer has no self-employment income in the tax year, there will be the £1,000 trading allowance to offset against this miscellaneous income.

The acquisition cost of the USDC tokens received as an income reward is £15,000. When they are disposed of there will be a capital gains or capital loss, depending on the further change in value. There is unlikely to be much of a gain or loss on stablecoins though due to the minimal fluctuation in value.

On sale of BTC for fiat

Capital gain of £300,000 (£500,000 less value when un-staked of £200,000) in the 23/24 tax year.

The capital loss of £100,000 realised on exit in 22/23 was not used and was carried forwards to 23/24. Therefore the net capital gain in 23/24 is £200,000.

CGT of £40,000 (£200,000 at 20%) to pay for 23/24, due for payment to HMRC by 31 January 2025. This is in addition to the £40,000 paid on the £200,000 capital gain in 21/22.

In total £80,000 CGT is paid on the 10 BTC on a total capital gain of £400,000. No extra CGT has been payable as a result of the new HMRC guidance triggering a disposal upon entry and exit of the staking. It has just accelerated the payment of half of that CGT to the point of entering the staking activity, rather than it all being payable in 23/24 when cashed out for fiat.

3️⃣
Example 1B
Example 1C
Example 1D