Income Tax on Crypto
Mining, staking, airdrops, salary paid in crypto — when Income Tax applies instead of (or alongside) CGT.
Income Tax on Crypto
While CGT is the most common tax on crypto disposals, Income Tax applies when you receive crypto as a form of income.
When Income Tax Applies
| Activity | Tax Treatment | HMRC Reference |
|---|---|---|
| Salary/wages paid in crypto | Employment income (PAYE) | CRYPTO10300 |
| Mining (if amounts to a trade) | Trading income | CRYPTO21200 |
| Staking rewards (if amounts to a trade) | Trading income | CRYPTO40250 |
| Staking rewards (if NOT a trade) | Miscellaneous income | CRYPTO40250 |
| Airdrops (received for a service) | Miscellaneous income | CRYPTO21250 |
| Airdrops (received without action) | Not taxable at receipt; CGT on disposal | CRYPTO21250 |
| DeFi lending returns (interest-like) | Income Tax (if not a trade) | CRYPTO61211 |
Is Mining/Staking a "Trade"?
HMRC expects this to be the case only in exceptional circumstances for individuals. For most retail users, staking and mining rewards are taxed as miscellaneous income under ITTOIA 2005, s.687.
The distinction matters because:
- Trading income can offset trading losses and claim trading allowances.
- Miscellaneous income is more limited in what expenses can be deducted.
For someone running a large-scale mining operation with significant investment in hardware, it's more likely to be considered a trade. For someone staking 32 ETH at home, it's almost certainly miscellaneous income.
How Crypto Income Is Valued
Income Tax is charged on the GBP value at the time of receipt. When you later dispose of tokens received as income, the cost basis for CGT purposes is that same GBP value at receipt.
Example: You receive 0.1 ETH as a staking reward when ETH is £2,000. You pay Income Tax on £200. If you later sell that 0.1 ETH when ETH is £3,000, you have a capital gain of £100 (£300 − £200).
Airdrops — A Common Trap
Many people assume airdrops are "free money" with no tax. That's only true for unsolicited airdrops (received without any action). If you performed any action to receive the airdrop — such as holding a token, using a protocol, or completing tasks — HMRC may treat it as miscellaneous income.
HMRC CRYPTO21200 — Mining.
HMRC CRYPTO61211 — DeFi lending income treatment.
ITTOIA 2005, s.687 — Miscellaneous income.
Explain Like I'm 5
Sometimes you earn digital coins instead of buying them, like getting pocket money for doing chores. If someone pays your wages in coins, or you earn coins by helping a computer network run, the government says that is income, just like pocket money. You pay tax when you receive them, and then again if they go up in value and you sell them later. If someone just drops free coins in your wallet without you doing anything, you only pay when you sell.
Key Takeaways
- Income Tax applies to crypto received as salary, mining rewards, staking rewards, and some airdrops.
- Most individuals' staking and mining income is taxed as miscellaneous income, not trading income.
- Income is valued at GBP at the time of receipt — this also becomes your CGT cost basis.
- Unsolicited airdrops are not taxable at receipt, but CGT applies on disposal. Active airdrops may be income.
Educational only - not financial advice