NFT Taxability In The UK: Creator & Collector Insights
- MAZ
- 13 minutes ago
- 11 min read
Navigating NFT Taxation in the UK: Essential Insights for Creators and Collectors on Gains and Losses
Picture this: You've just sold a digital artwork as an NFT for a tidy profit, or perhaps you've watched the value of your prized collection plummet. Either way, that nagging question creeps in – what does HMRC expect from you come tax time? As a tax accountant with over 18 years advising UK clients, from freelance artists in Manchester to savvy investors in London, I've seen firsthand how NFT tax rules can catch people off guard. None of us loves a surprise letter from HMRC, but getting this right can save you thousands and plenty of stress.
Understanding the Basics of NFT Tax Treatment in the UK
HMRC treats NFTs as cryptoassets, but with a key twist: they're non-fungible, meaning each one is unique. According to HMRC's Cryptoassets Manual (updated as of late 2025), this uniqueness means NFTs aren't pooled like fungible tokens such as Bitcoin or Ether. Instead, you calculate gains or losses on each individual NFT separately – no averaging across a pool.
For most collectors – those buying and holding NFTs as investments – disposals trigger Capital Gains Tax (CGT). Buying an NFT isn't taxable, but selling, swapping, gifting (outside your spouse), or even using it to buy goods is a disposal.
Key CGT Figures for the 2025/26 Tax Year
The annual exempt amount remains £3,000. Gains above this are taxed at 18% if you're a basic-rate taxpayer or 24% if higher or additional rate (following the alignment from Autumn Budget 2024, effective for 2025/26 disposals).
Aspect | Detail for 2025/26 |
Annual Exempt Amount | £3,000 per individual |
Basic Rate CGT | 18% (on gains within basic rate band) |
Higher/Additional Rate CGT | 24% |
Reporting Threshold | Report if total disposals > £50,000 or gains > allowance |
Be careful here, because I've seen clients trip up assuming NFTs follow the same rules as shares – they don't, due to no pooling.
Common Taxable Events for NFT Collectors
So, the big question on your mind might be: when exactly do I owe tax? Let's break it down.
Selling or Trading an NFT
This is the most straightforward disposal. Your gain (or loss) is the sale proceeds minus your acquisition cost, including allowable expenses like gas fees or platform commissions.
Swapping NFTs or Using Crypto to Buy One
Trading one NFT for another, or using ETH to purchase, counts as disposing of the original asset.
Gifting or Donating NFTs
Gifting to anyone but your spouse/civil partner is a market-value disposal.
Losses? Absolutely allowable. You can offset them against other CGT gains in the same year or carry forward indefinitely. If an NFT becomes worthless (e.g., project rugs), you might claim a negligible value loss – but evidence is key.
A Practical Example for Collectors
Take Alex from Bristol, a client of mine who started collecting NFTs in 2022. He bought a popular art piece for £5,000 (including fees) and sold it in 2025 for £12,000.
● Proceeds: £12,000
● Cost: £5,000
● Gain: £7,000
● After £3,000 allowance: £4,000 taxable
● At higher rate (24%): £960 CGT due
But Alex had another NFT he'd bought for £3,000 and sold for £1,000 – a £2,000 loss. Offset that, and his taxable gain drops to £2,000, tax just £480. Simple, but spotting those losses saved him nearly half.
Now, let's think about your situation – if you're a collector with a portfolio of 50+ NFTs, tracking each one's cost basis manually is a nightmare. I've recommended software to many clients that pulls wallet data and values in GBP at transaction dates.
Special Considerations for Losses in Volatile Markets
The NFT market has been a rollercoaster – booms in 2021-22, then sharp drops. Many of my clients faced realised losses in 2023-2025.
You can report losses to HMRC even if no tax is due, to carry forward. Use the Capital Gains Summary (SA108) in your Self Assessment.
Quick Loss Checklist
● Keep records of acquisition date, cost in GBP, and proof (wallet transactions).
● Value at disposal using reputable sources (e.g., marketplace floor price or sale data).
● Claim within 4 years if not on a return.
In my experience advising London-based investors, proactively harvesting losses before year-end has offset future gains beautifully.
Tax Pitfalls I've Seen Collectors Encounter
One common error: forgetting fees. Gas fees on minting or buying are allowable costs – add them in.
Another: airdropped NFTs. If unsolicited, the cost basis is often zero; gain full proceeds on sale.
And for high-value collections, consider if your activity looks like trading – rare for collectors, but frequent flips could shift to Income Tax.
NFT Taxation for Creators: Why the Rules Feel So Different
If you're an artist or developer minting and selling NFTs, the tax picture shifts dramatically from collectors. HMRC often views this as trading activity, meaning Income Tax applies rather than CGT. In my experience advising creative clients in London and beyond, many assume everything NFT-related falls under capital gains – but that's a costly mistake I've helped several rectify.
When NFT Creation Counts as a Trade
HMRC looks at the "badges of trade" to decide: frequency of sales, organisation level, profit motive, and how you modify or promote the work. For a one-off hobby project, it might be CGT. But regular drops, marketing, or building a collection? That's trading income.
Royalties from secondary sales are almost always miscellaneous income, taxed when received.
Income Tax Rates for 2025/26
As a self-employed creator, profits go through Self Assessment.
Tax Band | Taxable Income (after allowances) | Rate |
Personal Allowance | Up to £12,570 | 0% |
Basic Rate | £12,571 to £50,270 | 20% |
Higher Rate | £50,271 to £125,140 | 40% |
Additional Rate | Over £125,140 | 45% |
Don't forget Class 4 National Insurance on profits: 6% between £12,570 and £50,270, 2% above.
A Real-World Creator Scenario
Picture Emma, a digital artist from Leeds I advised last year. She minted a 10-piece collection in 2025, selling primaries for £40,000 total (after platform fees) and earning £8,000 in royalties.
● Sales proceeds: £40,000
● Allowable costs (software, gas fees, marketing): £10,000
● Profit: £30,000
● Royalties: £8,000 (treated as income)
● Total taxable: £38,000
Assuming no other income, after personal allowance: £25,430 at 20% = about £5,086 tax, plus NI.
But Emma had losses from a failed earlier project – £5,000 allowable against profits, dropping her bill significantly.
Be careful here: I've seen creators overlook deductible expenses like equipment or studio costs.
Deductible Expenses for NFT Creators
You can claim:
● Gas fees for minting
● Software/subscriptions (Photoshop, etc.)
● Marketing/advertising
● Proportion of home office if working from home
● Professional fees (accountant, legal for smart contracts)
Keep receipts – HMRC loves evidence.
Handling Losses as a Creator
Trading losses can offset other income in the same year, carry back, or forward. If your NFT venture loses money (common in bear markets), claim relief promptly.
For hobby creators (CGT), losses offset other gains.
VAT Considerations for Creators
If turnover exceeds £90,000 (2025/26 threshold), register for VAT. NFT sales might be standard-rated, but guidance is evolving – check GOV.UK.
Advanced Scenarios: Fractional NFTs and Royalties
Fractionalised NFTs? Still individual assets for CGT if investing, but complex for creators.
Ongoing royalties: Tax as income each time paid, even small amounts.
Now, let's pull this together for business owners and mixed portfolios.
NFT Tax Strategies for Business Owners and Hybrid Creators/Collectors
Many clients run companies or have side NFT activities. If your business mints NFTs (e.g., brand collectibles), it's Corporation Tax on profits at 19-25% (depending on level).
Case Study: A Business Owner's NFT Launch
Take Raj, who owns a tech firm in Birmingham. His company launched branded NFTs in 2025, generating £100,000 profit.
● Corporation Tax: £22,500 (at 25% marginal)
● But extracted as dividends? Further tax.
Raj offset R&D costs from development – saving thousands.
If you're a sole trader/partner, Income Tax as above.
Mixing Collecting and Creating
Hold personal collection while creating professionally? Segregate records meticulously – HMRC scrutinises.
Practical NFT Tax Worksheet
Here's a simple template I've shared with clients – fill it in annually:
List each NFT disposal: Acquisition date/cost (GBP), Disposal date/proceeds (GBP), Fees.
Calculate gain/loss per NFT.
Total gains; subtract £3,000 allowance.
Apply CGT rate based on your band.
For income: List royalties/rewards received, value in GBP.
Add to other income; calculate tax/NI.
For creators: Track expenses monthly.
Common Pitfalls I've Seen in Client Reviews
● Valuing in crypto without converting to GBP at transaction time.
● Forgetting airdrops (taxable if earned).
● Assuming losses auto-carry – report them!
In volatile markets, proactively realise losses to offset future gains.
Reporting and Compliance Tips for 2026 Filing
For 2025/26 events, report via Self Assessment by January 2027 (online).
Use HMRC's Capital Gains Summary for disposals over £50,000 or gains triggering tax.
Records: Keep 5+ years – wallet statements, marketplace exports.
Software helps: Many clients use tools integrating with OpenSea/etc. for auto-GBP conversions.
Honestly, if your portfolio is substantial, book a review early – prevents nasty surprises.
Summary of Key Points
NFTs are unique cryptoassets; no pooling – calculate each separately per HMRC Cryptoassets Manual.
Collectors usually pay CGT on disposals: 18% basic/24% higher rate for 2025/26, after £3,000 allowance.
Losses offset gains same year or carried forward; report even if no tax due.
Creators often face Income Tax on sales/royalties if trading; use badges of trade to assess.
Deductible costs include fees, software, marketing for creators.
Royalties are miscellaneous income, taxed on receipt.
Businesses pay Corporation Tax; extract wisely to minimise personal tax.
Keep detailed GBP-valued records; use software for accuracy.
Report via Self Assessment; deadlines strict – penalties hurt.
Consult professionals for complex cases; proactive planning saves significantly, as I've seen with many clients navigating NFT booms and busts.
FAQs
Q1: What happens if someone receives an airdropped NFT unexpectedly while holding other cryptoassets?
A1: Well, it's worth noting that unsolicited airdrops are often treated differently from those earned through promotion. In my experience with clients who've had surprise drops into their wallets, HMRC typically views these as having a zero cost basis if truly unsolicited. So when you later sell, the full proceeds could become a capital gain. I've advised one collector in Edinburgh who received a free NFT from a project he held tokens in – we treated it conservatively as CGT on disposal, avoiding any income tax surprise.
Q2: Can a collector claim capital losses on an NFT that has become completely worthless?
A2: Absolutely, but you need to realise the loss properly. Simply holding a valueless NFT doesn't trigger relief – consider selling for a nominal amount, gifting to a non-spouse, or even burning it if the platform allows. One client of mine had a collection from a failed project; we used a negligible value claim with evidence of zero market activity, offsetting £8,000 in losses against other gains and saving him a tidy sum in tax.
Q3: How does HMRC distinguish between an NFT collector paying CGT and a creator facing Income Tax?
A3: The key is the 'badges of trade' – frequency, organisation, profit-seeking intent. Collectors usually flip occasionally, so CGT applies. But if you're regularly minting and marketing drops, it looks like a trade. I've seen artists start as hobbyists but cross into trading territory after a few successful collections; getting this wrong led to one client's reassessment with backdated Income Tax and NI.
Q4: Are gas fees and platform commissions deductible when calculating NFT gains or profits?
A4: Yes, they're allowable costs added to your base. For collectors, deduct from CGT proceeds; for creators, treat as business expenses. A London-based client forgot to include Ethereum gas on several mints – reclaiming those fees reduced his taxable profit by over £2,000. Always screenshot transactions; HMRC loves proof.
Q5: What tax implications arise if someone uses one NFT to buy another directly?
A5: That's two disposals – you dispose of the first NFT (triggering CGT) and acquire the second. Value both in GBP at the exact swap time. I've helped traders who chained swaps without realising each step was taxable; one ended up with unexpected gains from appreciating assets used as 'currency'.
Q6: Can NFT royalties received by a creator be offset with expenses from earlier projects?
A6: Royalties are usually miscellaneous income, taxed on receipt. But if you're trading, pool them into business profits and deduct related costs, even from prior unsuccessful drops. A Manchester illustrator I advised carried forward development expenses against ongoing royalties, turning what looked like pure income into a much lower taxable amount.
Q7: Is transferring an NFT between personal wallets ever taxable?
A7: No, moving between your own wallets isn't a disposal. But document it clearly. One cautious client kept detailed notes after an HMRC query on wallet hops – it proved no sale occurred, avoiding a mistaken gain calculation.
Q8: What happens tax-wise if someone gifts an NFT to a family member other than a spouse?
A8: It's a market-value disposal, potentially triggering CGT for the giver. The recipient inherits your cost basis. I've seen parents gift to children for allowance sharing, but one overlooked the gain and faced a bill; planning ahead with valuations is crucial.
Q9: Are there any VAT considerations for UK residents buying or selling NFTs casually?
A9: Private collectors usually fall outside VAT scope. But if activity ramps up to business levels, registration might be needed over the £90,000 threshold. A hobbyist client started small but hit turnover quickly; early advice prevented VAT penalties on retrospective sales.
Q10: How can losses from a failed NFT project be used if no sale is possible?
A10: File a negligible value claim with HMRC evidence like abandoned marketplaces or zero floor price. Approval treats it as disposed at nil, crystallising the loss for offset. One investor I worked with claimed £15,000 across rug-pulled pieces this way – proper screenshots and timeline proof made all the difference.
Q11: Does earning NFTs through play-to-earn gaming trigger immediate tax?
A11: Often yes, as income at market value when received or withdrawable. Then CGT on later sales. A gamer client in Bristol earned in-game assets worth thousands; we treated withdrawals as income, but offset gaming expenses to soften the blow.
Q12: Can fractional ownership of an NFT complicate tax calculations?
A12: Yes, each fraction is treated proportionally, but track your share meticulously. Selling a fraction is a part-disposal. One client in a pooled high-value art NFT struggled with apportioning costs; software integration helped avoid errors HMRC might challenge.
Q13: What if someone receives royalties in crypto rather than fiat from NFT secondary sales?
A13: Still income at GBP value when received, plus potential CGT if you hold and sell the crypto later. A creator client got ETH royalties; we valued at receipt for Income Tax, then tracked any appreciation separately.
Q14: Are there special rules for NFTs representing real-world assets like property or art?
A14: The NFT itself follows crypto rules, but underlying asset location might affect situs for IHT. Pure digital ones follow your residence. I've advised on hybrid tokens where physical backing changed the inheritance planning entirely.
Q15: How should someone handle tax if an NFT project forks and they receive new tokens?
A15: Usually no immediate tax on receipt if unsolicited, but new tokens have split cost basis. Disposal later triggers CGT. One holder client navigated a fork smoothly by documenting the split proportions from day one.
About the Author
Maz Zaheer, AFA, MAAT, MBA, is the CEO and Chief Accountant of MTA and Total Tax Accountants, two premier UK tax advisory firms. With over 15 years of expertise in UK taxation, Maz provides authoritative guidance to individuals, SMEs, and corporations on complex tax issues. As a Tax Accountant and an accomplished tax writer, he is renowned for breaking down intricate tax concepts into clear, accessible content. His insights equip UK taxpayers with the knowledge and confidence to manage their financial obligations effectively.
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