How do the US and UK tax authorities treat crypto?

Property, not money: the US view

For US tax, the IRS says digital assets are property, not currency.¹ A digital asset is a record of value kept on a cryptographically secured ledger, such as a blockchain. Examples include bitcoin, stablecoins and NFTs.¹

The IRS first set this out in 2014, in a document called Notice 2014-21.⁴ It said the general tax rules for property apply to crypto.^7,5 It also said crypto is not treated as a foreign currency for US tax.⁷

US tax is worked out in dollars. Notice 2014-21 says crypto transactions must be reported in US dollars.⁷ You use the crypto's fair market value: roughly, what it was worth in dollars at that moment.^7,8

Not money or currency: the UK view

HMRC, the UK tax authority, says it does not consider cryptoassets to be currency or money.² Gains and losses must be converted into pounds sterling for the tax return.⁹

Some trades have no sterling price at all, for example bitcoin swapped for ether. Then you must find a suitable exchange rate, use a consistent method, and keep details of how you did it.⁹

Two ways tax comes up

The first is a disposal: you sell crypto, swap it or spend it. HMRC says most individuals hold crypto as a personal investment, and pay Capital Gains Tax when they dispose of it.³ The IRS says crypto held for personal or investment use gives a capital gain or loss when you sell or dispose of it.¹

The second is income: you receive crypto. HMRC says individuals pay Income Tax and National Insurance on crypto they receive from an employer, or from mining, transaction confirmation (such as staking) or airdrops. Lesson 4 explains when.^3,10 In the US, crypto received as payment for goods or services counts in your income at its fair market value.⁷

Trading is a special case

Some people buy and sell so much that it becomes a business. HMRC says it would only expect this for individuals in exceptional cases. If it is a trade, Income Tax takes priority over Capital Gains Tax.¹²

The IRS makes a similar split. Crypto held as an investment usually gives a capital gain or loss. Crypto held mainly for sale to customers, like stock in a shop, gives an ordinary gain or loss instead.⁷