Why you can trust this guide
There is no one clear rule that says how every single one of your cryptocurrency transactions should be taxed. Instead, the IRS periodically releases guidelines to help you understand your obligations.
Our Head of Tax, Nick Waytula, reviewed these guidelines alongside our expert writing team to help produce this comprehensive guide to crypto gas fees.
Earnings from yield farming or lending crypto in DeFi platforms are taxed as income at the time they are received. However, depositing into and withdrawing from a liquidity pool may be treated as a disposal, which is a capital gains event.
Receiving cryptocurrency as payment for goods or services is treated as income at its market value when received. There are instances where the “value” of the work will be taxed instead of the value of the crypto received. Professional advice should be taken if you are unsure.
If you actively participate to receive an airdrop (e.g., completing tasks), the tokens are treated as income at their market value upon receipt.
Mining rewards are taxed as income. Those undertaking mining activities to an extent to which they are operating a business will be subject to additional tax obligations.
Cryptocurrency earned through staking is considered income at the market value at the time of receipt.
Adding liquidity: If adding assets to a liquidity pool results in a change of ownership or creates a new token (e.g., LP tokens), it may be considered a taxable disposal, with CGT applying to any gains. The answer to this can usually be found within the terms and conditions of the protocol.
Removing liquidity: Removing assets from a liquidity pool may also be a disposal, potentially triggering CGT based on the gain or loss relative to the cost basis.
Liquidity pool rewards are generally treated as taxable income upon receipt, subject to Income Tax.
Selling tokens received through an airdrop is a taxable disposal.
Tokens received without any action (eg, unsolicited distributions) are not taxed as income upon receipt. Instead, they are subject to Capital Gains Tax (CGT) when sold, with the cost basis typically being zero or the fair market value at the time of receipt if explicitly stated by HMRC.
Tokens earned through performing tasks (eg, completing activities) are taxed as income at the market value in GBP upon receipt. When sold, the gain or loss is subject to CGT, calculated using the market value at receipt as the cost basis.
Disposing of NFTs is treated similarly to crypto disposals, with gains subject to CGT.
Gifting crypto to someone triggers CGT based on the market value at the time of the gift. Gifting to registered charities or your spouse or civil partner does not trigger a taxable event. Here, we have often seen individuals gifting tokens to others but keeping them in their own wallet. If this is the case, it is very important to document the gift. Consider speaking to a tax advisor if you are uncertain of your position.
Spending cryptocurrency on goods or services is considered a disposal.
Exchanging one cryptocurrency for another (e.g., BTC for ETH) is treated as a disposal for tax purposes.
Any profit made when you sell crypto for fiat currency (e.g., GBP) is a taxable event.
In most cases of buying and selling cryptocurrency as a retail investor, you are participating in investing rather than trading. The two are treated differently for tax purposes.
The key difference between investing and trading – along with the different tax treatments, is how losses generated in the crypto-activity can be used.
In their guidance, HMRC have explicitly stated that they would expect it to be exceedingly rare that any crypto-activity constituting buying & selling crypto would be classified as “trading”.
If you are uncertain, speak to a tax advisor as there are always exceptions, including but not limited to, developing tokens and large scale mining.
You can be liable for both capital gains and income tax depending on the type of cryptocurrency transaction, and your individual circumstances. For example, you might need to pay capital gains on profits from buying and selling cryptocurrency, or pay income tax on interest earned when holding crypto.
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At the time of writing gas price is 180 Wei and to do a trade on Uniswap cost around $100 in ETH. This is a significant amount for most users, and adding this to your cost basis is an important part in minimizing your taxes. But in most circumstances you will also need to consider the capital gains realized on the ETH you are spending for gas.
Example:
In the above example Satoshi sells $1,000 worth of SUSHI on Uniswap for DAI. To do this he pays $100 in gas using ETH. He originally bought his Sushi for $200, and his ETH for $30 each. Satoshi realized a profit of $800 by selling his sushi (1000 - 200), but he also had $100 worth of gas fees, so he overall realized gain is $700 (1000 - 200 - 100). However he originally bought ETH at $30, and at the time of the transaction ETH was worth $1000, so Satoshi needs to consider the gain in ETH. This would be calculated as $97 ((1000 - 30) * 0.1). As you can see there is a lot going on here.
Fortunately Crypto Tax Calculator is one of the few crypto tax software offerings to carefully consider this scenario. All you need to do is import your Ethereum public wallet address into our app, and we will automatically categorise all these transactions and handle this calculations for you. All you need to do is sanity check the results and you are sorted.
The information provided on this website is general in nature and is not tax, accounting or legal advice. It has been prepared without taking into account your objectives, financial situation or needs. Before acting on this information, you should consider the appropriateness of the information having regard to your own objectives, financial situation and needs and seek professional advice. Crypto Tax Calculator disclaims all and any guarantees, undertakings and warranties, expressed or implied, and is not liable for any loss or damage whatsoever (including human or computer error, negligent or otherwise, or incidental or Consequential Loss or damage) arising out of, or in connection with, any use or reliance on the information or advice in this website. The user must accept sole responsibility associated with the use of the material on this site, irrespective of the purpose for which such use or results are applied. The information in this website is no substitute for specialist advice.
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