Crypto Airdrop Taxes UK: Instructions + HMRC Rules [2024]

Receiving crypto airdrops can lead to taxes in the UK, but there’s a catch you need to know about! Crypto airdrops have generated some confusion among UK taxpayers, but HMRC has since clarified the taxation of airdrops, and we’re here to help!

Discover how crypto airdrop taxes work in the UK, how to determine the income from airdrops, when to report your crypto taxes in the UK, and much more!

What is an Airdrop?

Crypto projects often reward early users with free tokens through a process known as an airdrop. Users receive “airdropped” tokens as a reward for engaging with new projects, ranging from crypto exchanges to wallets.

Do I Have to Report Airdrops to the HMRC?

You must report the Fair Market Value (FMV) (in GBP) of any airdrop you receive if you performed an action in return for those tokens. However, if you received the tokens without doing any work (e.g., not promoting the token), you don’t have to report the FMV.

That said, if you sell any of the airdropped tokens at a profit, you’ll need to calculate the gain and pay the corresponding capital gains taxes.

Airdrop Tax Overview

Here’s an overview of UK airdrop taxes:

How are Airdrops Taxed in the UK?

Airdrops can be taxed at both income tax and capital gains tax levels, depending on the type and timing of the transaction. If you performed any work, such as marketing or development, to receive the airdrop, you’ll need to pay income taxes.

If you later sell airdropped tokens at a profit, you’ll be subject to capital gains tax. However, airdrops may be tax-free under certain circumstances in the UK. Let’s explore:

Income Tax

Airdrops are taxed under income tax in the UK if you performed work to receive the tokens. In that case, you need to determine the Fair Market Value (FMV) in GBP at the time of receipt and add it to your income. You’ll be taxed according to your income tax bracket, which ranges from 0% to 45% depending on your total annual income.

Capital Gains Tax

Selling airdropped tokens for fiat or another cryptocurrency will trigger capital gains tax. You’ll need to calculate the gain on the sale and pay tax according to the capital gains tax rate, which varies from 0% to 20% depending on your income. For more details, refer to the crypto tax rates in the UK.

When are Airdrops Taxed?

When you receive new tokens from an airdrop, if you did some work to be entitled to them, you’ll need to determine the Fair Market Value (FMV) in GBP. You’ll also be taxed when you sell those tokens at a capital gains level, with the tax rate depending on your total taxable income for the year.

How to Determine the Cost Basis for an Airdrop?

The cost basis of an airdrop is the FMV (in GBP) at the time you received the airdrop. You can determine this manually by multiplying the amount of tokens you received by their market price at that moment. Alternatively, using crypto tax software makes it easier to track the FMV and include it in your income for tax purposes.

Common Issues Regarding Airdrop Taxes

Here are some of the most common issues when dealing with crypto airdrop taxes:

Missing Data

Airdropped tokens might not appear on major crypto data platforms, making it harder to track FMV. You can resolve this by searching for centralized providers that track new coins, but this complicates the process of price tracking and income reporting.

Value of Airdropped Tokens Dropped

Given the volatility of some tokens, their value may decrease drastically. However, you only owe income tax when you’ve worked for the airdrop. If the value plummets, research the token before participating to avoid scams.

Airdrop Rewards Without FMV

If there’s no available market data, you must wait for a market price to determine the FMV of your airdropped tokens for tax reporting.

Unwanted Airdrops

If you receive an airdrop without doing any work for it, you don’t owe income tax on it in the UK.

Airdrop Scam

If you’re scammed or lose your coins in an airdrop scam, you’ll only experience a loss if you worked for the airdrop. However, losses from scams can still affect your taxes.

How to Report Airdrops on an HMRC Tax Report?

You must include the FMV of an airdrop in your total income for the year on your Self-Assessment Tax Return. Additionally, you must report gains or losses from later selling airdropped tokens, which will be taxed as capital gains (or deducted from other gains) using supplementary forms like SA108.

How to Easily Calculate Airdrop Taxes

The easiest way to track FMV for airdrops and calculate gains from crypto-to-crypto trades is with crypto tax software like CoinTracking. Manually calculating these values requires tracking the tokens’ market price at the time of receipt. However, crypto tax software can automatically fetch prices and calculate gains when you sell your airdropped tokens.

Crypto Airdrop Taxes in Other Countries

Canada

In Canada, you do not pay taxes on crypto airdrops when you receive them. However, you will pay capital gains taxes when you sell them for fiat currency or another cryptocurrency. Read more in our guide for crypto taxes in Canada.

Australia

In Australia, crypto airdrops are taxed at an income level when you receive the newly airdropped tokens, based on their Fair Market Value (in AUD). Discover how to report your crypto taxes in Australia in our new guide.

United States

In the US, crypto airdrops are taxed at an income level when you receive them and at a capital gains level when you sell them. Discover more about how US crypto taxes work.

Conclusion about UK Airdrop Taxes

Taxes on airdrops in the UK depend on whether you did any work to receive them and the timing of the transactions. In either case, tracking the Fair Market Value and gains of tokens can be challenging. Crypto tax software like CoinTracking is the easiest way to monitor the FMV of airdrops, determine the gain on each trade, and generate tax reports to file your crypto taxes.

Summary of Key Points

TL;DR about crypto airdrop taxes in the UK:

• Airdrops are taxed at an income level only if you did any work to receive them.
• Selling crypto airdrops will incur capital gains taxes, with your tax rate depending on your income tax bracket.
• You must include income from airdrops in your Self-Assessment Tax Return and report gains on the SA108 form.

The easiest way to track the Fair Market Value of airdrops (as income) and the gains/losses from selling them is with a crypto portfolio tracker.