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 the HMRC has since clarified its 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 usually reward early users of their platforms with free tokens of their cryptocurrency in what is called an airdrop. Users receive “airdropped” tokens as a reward for using new projects, from crypto exchanges to wallets.

Do I Have to Report Airdrops to the HMRC?

You have to report the Fair Market Value (in GBP) of any airdrop you receive if you did something in return to receive those tokens. You don’t have to report that FMV if you received the tokens from a project without doing any work to be entitled to them (including shilling the token on social media). 

However, if you later sell any of the airdropped tokens at a profit, you’ll have to determine the gain and pay the appropriate 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 an income level and capital gains tax levels, depending on the type of transaction and the moment of that transaction. If you have engaged in some kind of work, from marketing promotion to development work, to be eligible for the airdrop, you’d have to pay income taxes on it. 

If you sell airdropped tokens at a profit after receiving them, you’ll enter a capital gains tax scenario. However, airdrops can be tax-free under some circumstances in the UK. Let’s explore more:

Income Tax

Airdrops will be taxed under income taxes in the UK when you do some work that makes you entitled to receive tokens. In that case, you need to determine the Fair Market Value (in GBP) when you receive those tokens and add it to your income. You’ll be taxed according to your ordinary income tax bracket in the UK, ranging from 0% to 45% (depending on your total yearly income).

Capital Gains Tax

Selling airdropped tokens for FIAT or another cryptocurrency after receiving them will lead to capital gains taxes. You need to determine the gain on that transaction and get taxed at a capital gains rate. That tax rate will depend on your yearly income, ranging between 0% and 20%.

When are Airdrops Taxed?

When you receive new tokens from an airdrop, assuming you did some work to be entitled to them, you’ll have to determine the Fair Market Value (in GBP) of those tokens. You’re also taxed when you sell those tokens (after receiving them) at a capital gains level, with your 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 Fair Market Value (in GBP) at the time you received that airdrop. The easiest way to determine that is with the help of crypto tax software. Manually, you track the FMV by multiplying the amount of tokens you received by the market price at that moment. You must add that FMV to your yearly income and be subject to your ordinary income tax bracket.

Common Issues Regarding Airdrop Taxes

Here are some of the most common issues when trying to do your crypto airdrop taxes: 

You are Missing Some Data

Tokens from airdrops, given their novelty, do not appear on the main crypto data platforms (e.g., CoinMarketCap), making it harder to track the Fair Market Value of coins. A way to solve this is to search for centralized providers that usually track newly launched coins. However, this increases the difficulty of tracking prices and income.

The Price of your Airdropped Token Dropped to Almost Nothing

With highly volatile tokens, the value of your airdrop may decrease due to a variety of reasons. You must research the token and project before working for an airdrop that may be a scam. You only have to pay income taxes when you receive the tokens if you did any work for them.

Your Airdrop Rewards had no Fair Market Value

If there is no market data available, the only option is to wait until there is some market price for you to determine the Fair Market Value of your crypto airdrop.

You Received an Airdrop you Didn’t Want

You don’t have to pay income taxes over that airdrop in the UK since you haven’t done any work to receive it. 

You are a Victim of an Airdrop Scam

In this case, you may lose your coins, or they can decrease in value. However, you only have a loss if you worked for that airdrop.

How to Report Airdrops on an HMRC Tax Report?

You must include the Fair Market Value of an airdrop in your total income for the year and in your Self-Assessment Tax Return. You must include gains/losses from later selling your airdrop (gains to be taxed at capital gains taxes and losses to deduct your other gains) by filling supplementary forms like the SA108.

How to Easily Calculate Airdrop Taxes

The easiest way to track the Fair Market Value (FMV) of several airdrops and the gain from multiple crypto-to-crypto trades (e.g., a trade between an airdropped token and another cryptocurrency) is with crypto tax software like CoinTracking.

Manually, you would need to multiply the amount of tokens you receive by the available market price at that moment to determine their FMV. However, you can do it automatically with a crypto portfolio tracker that fetches these prices for you. Crypto tax software can also automatically determine the gain when you sell airdropped tokens.

Crypto Airdrop Taxes in Other Countries

Canada 

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

Australia

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

US

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 moment of the transactions. In either case, it is tricky to track the Fair Market Value and gains of tokens. Crypto tax software like CoinTracking is the easiest way to track the FMV of airdrops, determine the gain on each trade, and generate tax reports to file your crypto taxes in the UK.

Summary of Key Points

TL;DR about crypto airdrop taxes in the UK

• Airdrops are only taxed at an income level in the UK if you did any work to receive them;
• Selling crypto airdrops will lead to 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 gains in 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 CoinTracking.