Is Crypto Staking Taxable In The UK?: HMRC Guidelines

by
Brihasi Dey
Reviewed by
min read
Last updated:

Cryptocurrency staking has gained significant popularity among investors seeking to actively participate in blockchain networks and earn potential rewards. 

However, the autonomous and real-time nature of your earnings and the fluctuating values of rewards can make tax calculations complex. 

In this article, we will explore how rewards from staking cryptocurrencies are taxed, particularly in countries like the UK. 

Curious about crypto taxes in the UK? Explore our comprehensive guide for all things related to UK crypto taxation!

What is Crypto Staking?

Staking crypto is where cryptocurrency holders earn passive income by actively supporting blockchain networks. It's an alternative to traditional mining, often linked to proof-of-stake (PoS) or delegated proof-of-stake (DPoS) blockchains.

Participants, called validators or "stakers," lock up their crypto to validate transactions and propose blocks. 

They maintain blockchain integrity, prevent wrongdoing, and, in return, receive tokens as a reward. 

Staking signifies the validator's commitment to network security, and the more they stake, the higher their earning potential. It lets crypto holders earn while helping blockchain networks function, making it attractive to many in the crypto community.

Taxation of Staking Rewards in the UK

Staking rewards are taxed in the UK based on two critical factors-

  • The classification of the reward as income or capital
  • The nature of the staking activity

If staking rewards are treated as income, they are subject to income tax, ranging from 20% to 45%. 

On the other hand, if they are deemed capital gains, they are subject to capital gains tax, with tax rates between 20 to 40% depending on the amount of gains.

Factors Influencing Tax Treatment

The HMRC (Her Majesty's Revenue and Customs) offers guidelines to differentiate between crypto income tax and crypto capital gains tax from staking activities. 

Factors such as the type of return, payment frequency, staking period, and the intention of the staker are considered when stipulating the tax implications. 

For instance, if one receives staking rewards in exchange for a service to a DeFi platform, they are more likely to be treated as taxable income.

Taxation Events Related to Staking

Staking activities can trigger multiple taxable events, including:

  • Making tokens available for staking: A change in ownership, where the platform can utilize or sell the tokens, triggers a Capital Gains Tax event. In such cases, the difference between the initial value of the new tokens and the average acquisition cost of the disposed tokens must be calculated to ascertain any capital gain or loss.
  • Withdrawing the stake: Upon withdrawing a stake, tax implications hinge on the initial transfer of ownership. Transferred ownership can lead to tax events, with CGT implications calculated from the value change when new tokens are returned. No initial transfer means no related tax consequences.
  • Disposing of staking rewards: Receiving tokens from staking counts as acquiring them for CGT purposes, with their market value in sterling setting the acquisition cost. This receipt isn't a CGT event. A future disposal of these tokens could result in a capital gain or loss, based on their value change and share matching rules that establish the cost basis for the disposal.

If there is a transfer of beneficial ownership during staking, it may result in a disposal for Capital Gains Tax purposes. 

When stakers receive new tokens as rewards, the acquisition cost is determined by the fair market value of the tokens upon receipt. Subsequent disposal of these tokens may lead to a capital gain or loss, depending on the change in value since acquisition.

The guidance from HMRC includes a list of factors to be considered in determining the nature of these staking rewards. While these factors are helpful, they are not definitive on their own; the ultimate classification relies on a comprehensive assessment of the circumstances. 

It is anticipated that HMRC expects the majority of such rewards to be considered taxable income.

Criteria suggesting that returns are income-based:

  • The return is generated as a result of providing a service to the DeFi platform.
  • The amount of the return is predetermined at the outset of the contract (for instance, a fixed 4% APY).
  • The return is distributed by the DeFi platform directly to those providing liquidity.
  • Payments of the return are made at regular intervals.
  • The duration of staking is either set for a specific term or is relatively brief.

Criteria suggesting that returns are capital-based:

  • The return is uncertain and based on chance at the time the contract is made.
  • The return comes from the sale of a capital asset.
  • The return accrues from an increase in the value of a capital asset held by the liquidity provider.
  • The return is made through a singular payment.
  • The staking term is open-ended or extended over a long period.

How Kryptos Can Help Calculate Your UK Crypto Taxes

While the above-stated rules look straightforward, keeping track of multiple transactions for different asset pools can quickly turn complicated. Kryptos does this all for you in a matter of minutes.

Simply import your transactions from 3000+ DeFi protocols, 100+ wallets and exchanges, and supported NFTs. Kryptos is your personal crypto tax assistant app that updates all your tax liabilities in a single dashboard and allows you to save taxes while staying compliant with the latest tax laws and it's completely FREE.

FAQs

1. Is crypto staking taxable in the UK?

Yes, crypto staking is taxable in the UK. The taxation of staking rewards depends on factors such as the classification of rewards (income or capital gains) and the nature of the staking activity.

2. How are staking rewards taxed in the UK?

Staking rewards can be taxed as income or capital gains. If treated as income, they are subject to income tax (ranging from 20% to 45%). If deemed capital gains, they are subject to capital gains tax (ranging from 10% to 20%).

3. What factors influence the tax treatment of staking rewards in the UK?

The tax treatment is influenced by facttors such as the type of return, payment frequency, staking period, and the intention of the staker. Rewards earned by providing a service to a DeFi platform and paid periodically are more likely to be taxed as income.

4. Are there different taxation events related to staking in the UK?

Yes, there are several taxation events related to staking, including making tokens available for staking, withdrawing the stake, and disposing of staking rewards. If there is a transfer of beneficial ownership during staking, it may result in a disposal for Capital Gains Tax purposes.

All content on Kryptos serves general informational purposes only. It's not intended to replace any professional advice from licensed accountants, attorneys, or certified financial and tax professionals. The information is completed to the best of our knowledge and we at Kryptos do not claim either correctness or accuracy of the same. Before taking any tax position / stance, you should always consider seeking independent legal, financial, taxation or other advice from the professionals. Kryptos is not liable for any loss caused from the use of, or by placing reliance on, the information on this website. Kryptos disclaims any responsibility for the accuracy or adequacy of any positions taken by you in your tax returns. Thank you for being part of our community, and we're excited to continue guiding you on your crypto journey!

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Is Crypto Staking Taxable In The UK?: HMRC Guidelines

By
Brihasi Dey
On

Cryptocurrency staking has gained significant popularity among investors seeking to actively participate in blockchain networks and earn potential rewards. 

However, the autonomous and real-time nature of your earnings and the fluctuating values of rewards can make tax calculations complex. 

In this article, we will explore how rewards from staking cryptocurrencies are taxed, particularly in countries like the UK. 

Curious about crypto taxes in the UK? Explore our comprehensive guide for all things related to UK crypto taxation!

What is Crypto Staking?

Staking crypto is where cryptocurrency holders earn passive income by actively supporting blockchain networks. It's an alternative to traditional mining, often linked to proof-of-stake (PoS) or delegated proof-of-stake (DPoS) blockchains.

Participants, called validators or "stakers," lock up their crypto to validate transactions and propose blocks. 

They maintain blockchain integrity, prevent wrongdoing, and, in return, receive tokens as a reward. 

Staking signifies the validator's commitment to network security, and the more they stake, the higher their earning potential. It lets crypto holders earn while helping blockchain networks function, making it attractive to many in the crypto community.

Taxation of Staking Rewards in the UK

Staking rewards are taxed in the UK based on two critical factors-

  • The classification of the reward as income or capital
  • The nature of the staking activity

If staking rewards are treated as income, they are subject to income tax, ranging from 20% to 45%. 

On the other hand, if they are deemed capital gains, they are subject to capital gains tax, with tax rates between 20 to 40% depending on the amount of gains.

Factors Influencing Tax Treatment

The HMRC (Her Majesty's Revenue and Customs) offers guidelines to differentiate between crypto income tax and crypto capital gains tax from staking activities. 

Factors such as the type of return, payment frequency, staking period, and the intention of the staker are considered when stipulating the tax implications. 

For instance, if one receives staking rewards in exchange for a service to a DeFi platform, they are more likely to be treated as taxable income.

Taxation Events Related to Staking

Staking activities can trigger multiple taxable events, including:

  • Making tokens available for staking: A change in ownership, where the platform can utilize or sell the tokens, triggers a Capital Gains Tax event. In such cases, the difference between the initial value of the new tokens and the average acquisition cost of the disposed tokens must be calculated to ascertain any capital gain or loss.
  • Withdrawing the stake: Upon withdrawing a stake, tax implications hinge on the initial transfer of ownership. Transferred ownership can lead to tax events, with CGT implications calculated from the value change when new tokens are returned. No initial transfer means no related tax consequences.
  • Disposing of staking rewards: Receiving tokens from staking counts as acquiring them for CGT purposes, with their market value in sterling setting the acquisition cost. This receipt isn't a CGT event. A future disposal of these tokens could result in a capital gain or loss, based on their value change and share matching rules that establish the cost basis for the disposal.

If there is a transfer of beneficial ownership during staking, it may result in a disposal for Capital Gains Tax purposes. 

When stakers receive new tokens as rewards, the acquisition cost is determined by the fair market value of the tokens upon receipt. Subsequent disposal of these tokens may lead to a capital gain or loss, depending on the change in value since acquisition.

The guidance from HMRC includes a list of factors to be considered in determining the nature of these staking rewards. While these factors are helpful, they are not definitive on their own; the ultimate classification relies on a comprehensive assessment of the circumstances. 

It is anticipated that HMRC expects the majority of such rewards to be considered taxable income.

Criteria suggesting that returns are income-based:

  • The return is generated as a result of providing a service to the DeFi platform.
  • The amount of the return is predetermined at the outset of the contract (for instance, a fixed 4% APY).
  • The return is distributed by the DeFi platform directly to those providing liquidity.
  • Payments of the return are made at regular intervals.
  • The duration of staking is either set for a specific term or is relatively brief.

Criteria suggesting that returns are capital-based:

  • The return is uncertain and based on chance at the time the contract is made.
  • The return comes from the sale of a capital asset.
  • The return accrues from an increase in the value of a capital asset held by the liquidity provider.
  • The return is made through a singular payment.
  • The staking term is open-ended or extended over a long period.

How Kryptos Can Help Calculate Your UK Crypto Taxes

While the above-stated rules look straightforward, keeping track of multiple transactions for different asset pools can quickly turn complicated. Kryptos does this all for you in a matter of minutes.

Simply import your transactions from 3000+ DeFi protocols, 100+ wallets and exchanges, and supported NFTs. Kryptos is your personal crypto tax assistant app that updates all your tax liabilities in a single dashboard and allows you to save taxes while staying compliant with the latest tax laws and it's completely FREE.

FAQs

1. Is crypto staking taxable in the UK?

Yes, crypto staking is taxable in the UK. The taxation of staking rewards depends on factors such as the classification of rewards (income or capital gains) and the nature of the staking activity.

2. How are staking rewards taxed in the UK?

Staking rewards can be taxed as income or capital gains. If treated as income, they are subject to income tax (ranging from 20% to 45%). If deemed capital gains, they are subject to capital gains tax (ranging from 10% to 20%).

3. What factors influence the tax treatment of staking rewards in the UK?

The tax treatment is influenced by facttors such as the type of return, payment frequency, staking period, and the intention of the staker. Rewards earned by providing a service to a DeFi platform and paid periodically are more likely to be taxed as income.

4. Are there different taxation events related to staking in the UK?

Yes, there are several taxation events related to staking, including making tokens available for staking, withdrawing the stake, and disposing of staking rewards. If there is a transfer of beneficial ownership during staking, it may result in a disposal for Capital Gains Tax purposes.

All content on Kryptos serves general informational purposes only. It's not intended to replace any professional advice from licensed accountants, attorneys, or certified financial and tax professionals. The information is completed to the best of our knowledge and we at Kryptos do not claim either correctness or accuracy of the same. Before taking any tax position / stance, you should always consider seeking independent legal, financial, taxation or other advice from the professionals. Kryptos is not liable for any loss caused from the use of, or by placing reliance on, the information on this website. Kryptos disclaims any responsibility for the accuracy or adequacy of any positions taken by you in your tax returns. Thank you for being part of our community, and we're excited to continue guiding you on your crypto journey!

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