Crypto Tax
Form 1040, SA100, Form 8938, FinCEN 114
Cryptoasset gains and income computed under both IRS and HMRC rules, which use different matching methods and rarely give the same figure.
What does Crypto Tax involve?
The IRS and HMRC agree that cryptoassets are property and that disposing of them is taxable. They disagree on how to work out which units were sold and what they cost. Someone filing in both countries needs two computations from the same transaction history, and credits that reconcile them.
Forms and filings involved
- Form 1040
The annual federal return for US citizens, green card holders and US residents, reporting worldwide income wherever the filer lives.
- SA100
The main UK Self Assessment return, with supplementary pages for foreign income, property, gains and residence.
- Form 8938
The FATCA asset statement attached to the tax return, with higher thresholds for filers who live abroad than for those in the US.
- FinCEN 114
The annual report of foreign accounts filed with FinCEN, separate from the tax return, once combined balances pass the threshold.
Same transactions, two sets of rules
The US treats digital assets as property.
Every disposal is a taxable event, including a swap of one token for another and spending crypto on goods, and each is reported on Form 8949. Form 1040 asks every filer a yes or no question about digital asset activity. US rules allow specific identification of the units sold where records support it, and otherwise apply first in, first out. Holding period decides whether a gain is long-term or short-term, so the date of each acquisition matters as well as its cost.
HMRC treats cryptoassets held by individuals as capital gains tax assets in most cases, and applies the share matching rules. Disposals are matched first with acquisitions on the same day, then with acquisitions shortly afterwards under the bed and breakfasting rule, and then with a pooled average cost for each token. Gains above the £3,000 annual exempt amount are taxed at 18% and 24%, depending on income. There is no long-term rate. The same sale therefore produces different gains in the two countries.
Staking rewards, mining receipts and many airdrops are generally taxed as income when received in both countries, with a later gain or loss on disposal. For a UK-resident US citizen, the UK generally has the primary right to tax gains and the US return claims a credit. Because the two computations can put different amounts in different years, the credit does not always line up with the tax it is meant to relieve. We prepare both computations from one reconciled ledger so the differences are visible.
What the crypto computation involves
- 01
- Transaction history reconstructed from exchange exports and wallet records
- 02
- US gains on Form 8949 using a supportable lot identification method
- 03
- UK gains under the same-day, bed and breakfasting and pooling rules
- 04
- Staking, mining and airdrop receipts classified in each country
- 05
- Non-US exchange accounts reviewed for FBAR and Form 8938 reporting
Who this is for
US citizens in the UK who trade or hold cryptoassets
- Investors who swapped tokens and assumed tax arose only on cashing out
- People receiving staking rewards, mining income or airdrops
- Holders with incomplete records across several exchanges and wallets
Why US UK Tax Returns
Each return is prepared with the other country's return open beside it, so a credit, election or disclosure on one is supported by the other.
One File
US and UK returns prepared in the same engagement and reconciled line by line.
Primary Sources
Every position traced to the Code, the treaty, IRS instructions or HMRC guidance.
Scope First
Returns, forms, years and fee agreed in writing before work begins.
The Same People
The team that files this year carries the elections and credits into the next.
Questions we are asked
I only swapped one coin for another and never cashed out. Is that taxable?
Generally yes, in both countries. The IRS and HMRC each treat an exchange of one cryptoasset for another as a disposal of the first at its market value, even though no dollars or pounds were received. The gain or loss is measured against what the first asset cost you. Moving the same asset between your own wallets is not a disposal, though the records need to show that is what happened.
Why do my US and UK crypto gains come out as different numbers?
Because the matching rules differ. The US identifies specific units or uses first in, first out. The UK matches with same-day and near-term repurchases first, then uses an averaged pool. The two countries also measure in different currencies, so exchange rate movement affects one computation and not the other. Over the full life of a holding the totals converge, but in any single year they can be far apart.
Do I have to report my account on a non-US crypto exchange on the FBAR?
The position is unsettled. FinCEN has said that an account holding only virtual currency is not currently reportable, and that it intends to change the rules to bring such accounts in. An account that also holds ordinary currency or other reportable assets is a different matter. Form 8938 has its own definition of a foreign financial asset. We take a view account by account and record the reasoning.
Primary sources
What this page says is drawn from the official material below. Read it yourself; we would rather be checked than trusted.
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