Governments and regulators are homing in on cryptocurrency as a, thus far, relatively unregulated asset. The tide on this is turning, and their actions in recent budgets suggest that crypto is now being scrutinised as a potentially greater source of tax revenue. This is what we know about the government’s view of crypto today:
- Crypto acquired through mining or payments is classed as income, and is subject to standard income tax rules.
- Once in possession, crypto is considered to be “property” and is therefore subject to capital gains or losses upon disposal. Disposal can mean selling, exchanging, or spending your crypto.
- From 1 January 2026, under the OECD’s Crypto-Asset Reporting Framework (CARF), UK-based crypto platforms will be required to collect and share customer transaction data with HMRC.
- HMRC has confirmed that from 2025/26, Self-Assessment returns will include dedicated sections for cryptoassets.
The first two points highlight that crypto can be penalised by double taxation, as income (depending on how it is acquired) and property once it is held, making it subject to capital gains tax on disposal. The final two points signal that the government is making a move, which is being hidden under the smokescreen created by more mainstream policy announcements. The government might be positioning for a raid on crypto in budget statements to come, either now or once they have used the new transparency rules to quietly carry out an audit of crypto accounts in the UK.
So, if you are looking to diversify out of crypto, you’ve probably got some considerations: when is the right time? How do you reduce the risk of damage to your investment portfolio due to government changes in future? What can you do about the capital gains tax? Is there an alternative way you can invest your money with the potential to make significant gains? We will address these questions below.
When is the right time to diversify out of your crypto portfolio?
There are different approaches you might consider. You could choose to complete any transactions before the Autumn Statement to avoid any changes that are made with immediate effect, which we’ve seen in recent years. Alternatively, as most policies do not take immediate effect, you could wait and see what changes might affect you before making any decisions.
How can you reduce the effective tax rate on your crypto investments?
In the same way that all investments carry a risk to capital, they also carry a risk that government policy will change to make them less efficient. However, there are many financial products on the market that have been introduced by governments, and therefore carry a level of confidence in their longevity. A great mainstream example is ISAs, which allow tax-free growth. Another example that many are less familiar with is the Enterprise Investment Scheme (EIS), a government-backed scheme that offers generous tax reliefs to invest in early-stage companies with high growth potential.
Key Strategy: EIS
Enterprise Investment Schemes (EIS) offer a government-backed route to tax-efficient investing, contrasting the regulatory uncertainty surrounding crypto assets.
What can you do about the capital gains tax? Is there an alternative way you can invest your money with the potential to make significant gains?
Amongst other tax reliefs, EIS gains are tax free once the investments have been held for three years, and EIS investments are a vehicle in which capital gains from other assets can be deferred. This means that, if you crystallise a gain from crypto and reinvest that gain into EIS qualifying assets, you can defer the tax bill on the gain you’ve made until the new investment crystallises. Furthermore, you can reinvest on an uncapped basis, so each time it crystallises you can invest again and keep deferring the bill. This is compounded by 30% income tax relief on any EIS investment, so over time the benefit of the income tax relief can absorb the capital gain you are deferring. CGT deferral via EIS can be carried back for up to 3 years, so can be applied to CGT you’ve already paid in favour of a rebate.
Cryptocurrency versus venture capital is an interesting comparison.
On the surface, there are considerable differences, such as the investment itself – crypto is an asset that you own in full, the value of which is influenced by the market. Venture capital investments are purchases of shares in companies which do rely on the market for growth, but also rely on the people behind the companies to get things right. However, both assets can be very volatile, and timing is crucial to maximising returns. Crypto is theoretically very liquid, whereas venture capital investments are considered illiquid: they often have to be held for a long time and the shareholder may have little influence over selling. However, many crypto investors hold their assets for a number of years out of choice, in order to ameliorate market fluctuations, and perhaps in some cases out of an aversion to crystallising taxable gains. Whilst patterns in crypto can emerge to guide decision-making around your investment, investments in small companies are something tangible: you can buy into something you believe in and watch it grow as a result[MF3] [MF4] of expertise, ambition, and careful nurturing.
“These similarities mean that any crypto investor considering diversifying into alternative asset classes should be considering EIS; high risk, long holding periods and volatility in exchange for uncapped growth potential is familiar territory. Moreover, EIS offers a unique opportunity to mitigate the taxes incurred by crystallising gains in a crypto portfolio, alongside tax-free growth of your new asset.”
Notes & Expert Takeaways
Summary AnalysisUK Crypto Tax Changes 2025/26
- Crypto is considered property upon disposal.
- Income tax applies on crypto payments, mining, and staking.
- CGT due on gains when sold, spent, or exchanged.
- Tightening rules: Tax returns to have specific crypto section for 25/26.
- Reduced CGT personal allowance.
- From 1 Jan 2026 (CARF): UK platforms required to share transaction data with HMRC.
- General move towards government scrutiny. Is this tightening rules and hiking taxes under the smoke screen of wider-reaching policies?
Mitigation
- Timing disposals to take advantage of tax-free allowances.
- Crystallise losses to offset gains.
- Pension contributions to reduce taxable income.
- Tax-efficient investing – EIS for tax reliefs.
Reasons to go elsewhere
- How much has crypto grown? Can anything else rival that growth?
- Will the bubble burst – like the dot com bubble?
- Diversification in case crypto collapses – especially under gov’t scrutiny.
- Are you looking for something tangible?