Airdrops and UK Tax: When HMRC Treats Them as Income vs CGT

Every airdrop lands in a UK holder's wallet with the same question attached: is this income now, or a capital gain later? HMRC's answer, at CRYPTO21250 in the Cryptoassets Manual, turns on a single fact: whether you did something to get it. This guide sets out the test, what "doing something" has meant in practice for the airdrops UK users most commonly hold, how the cost basis works afterwards, and how to report both halves. It builds on the detailed airdrop guide, which has worked examples for Arbitrum, Jupiter and EigenLayer; the examples here are different.

The CRYPTO21250 test

HMRC's guidance says Income Tax may not apply to airdropped tokens received in a personal capacity where they are received without doing anything in return, not related to any service or other conditions, and not as part of a trade or business involving cryptoassets. Airdrops provided in return for, or in expectation of, a service are subject to Income Tax: as trading income if you are trading, otherwise as miscellaneous income under ITTOIA 2005 s.687.

That produces three outcomes:

The third row applies to very few individuals; the trader vs investor guide explains why. The real decision is between the first two rows, and it turns on the word "service".

What counts as a service

HMRC does not define it for airdrops, so the ordinary meaning applies: something you did that the project wanted, and gave you tokens for. The manual's phrase "or other conditions" is broader than "service" and is the part most people miss. Read together, HMRC's carve-out from Income Tax is narrow: tokens that arrived with no conditions attached at all. Working from clearest to least clear:

• Clearly a service: completing tasks, quests or quizzes; posting, retweeting or joining a Discord to qualify; running testnet nodes; providing liquidity or volume in a points programme that promised a drop; referring users.
• Probably a condition, arguably a service: holding a specified token or NFT on a snapshot date, delegating or voting in governance, staking with a particular provider to qualify for its token.
• Not a service: using a protocol for its own sake before any airdrop was announced, and being rewarded retroactively for it.

The retroactive point matters because HMRC's wording is "in return for, or in expectation of" a service. A retroactive drop rewards conduct you engaged in with no expectation of it, and the project offered nothing for it at the time you acted. That is the strongest ground for the CGT-only outcome. Someone who read a leak, farmed activity across twenty wallets and waited is a different case: the conduct was in expectation of the drop, and HMRC would say the tokens were the return for it.

Two things do not change the answer. Claiming the tokens is not a service; paying gas to press a claim button is mechanical, not something the project is rewarding. And a large value on receipt does not make tokens income; it changes the size of the CGT bill later.

Six airdrops, worked through

For an airdrop that mixes components, allocate the tokens between the two treatments using the project's own allocation breakdown where published, and note the method.

Valuation at receipt

For the income route, the sterling value is the market value when you received the tokens. Three practical problems:

• Received versus claimed. If the tokens required a claim, receipt is when they arrived in your wallet, not when eligibility was announced. If they were pushed to the wallet, it is the block timestamp.
• No market yet. Many airdrops become claimable before or at the moment of the first listing. Use the first liquid traded price after receipt, state the source, and be consistent. HMRC does not prescribe a source but expects one you can evidence.
• Locked or vesting allocations. A tranche you cannot access is arguably not yet received; the usual position is to recognise each tranche as it unlocks, at that date's value.

For the CGT-only route the receipt value is irrelevant to the income side but still worth recording, because of the cost basis question below.

Cost basis afterwards

Where the tokens were taxed as income, they enter your Section 104 pool at the value you declared. Selling later at a higher price produces a gain on the increase; selling lower produces an allowable loss. The income and the gain are on different pages of the return and are not netted against each other.

Where the tokens were not taxed as income, the conservative and default position is nil cost: the whole of the proceeds is a gain, less anything you paid to claim (gas on the claim is an incidental cost of acquisition under TCGA 1992 s.38). Some advisers argue TCGA 1992 s.17 gives a market-value base cost for any asset acquired for no consideration; s.17(2) removes that where there was no consideration and no corresponding disposal, and HMRC's manual does not offer market value for unsolicited drops. Tools including CryptoLens apply nil by default. If you take the market-value position, do so on advice and disclose it.

Airdropped tokens that later become worthless can support a negligible value claim under TCGA 1992 s.24 if they were taxed as income, because there is a real cost to crystallise; at nil cost there is nothing to claim. The Section 104 pooling guide covers how the pool absorbs them.

Reporting

• Miscellaneous income goes on SA100 box 17, "Other taxable income", as a single sterling total for the year, with the source described in box 21. If your total miscellaneous and casual income for the year is under £1,000, the trading allowance (ITTOIA 2005 Part 6A) covers it and nothing needs to be entered; if it is over, you can deduct the £1,000 instead of expenses.
• Disposals of airdropped tokens go on SA108 like any other, matched under the same-day, 30-day and pool rules. The 30-day rule can bite here: if you sell part of an airdropped token and a second tranche of the same token arrives within the following 30 days, the sale is matched to the new tranche at its receipt value rather than to the pool.

A wallet scan is the quickest way to find drops you have forgotten. Add your addresses at cryptolens.uk/import, and the airdrop rows appear on /tax classified as income or as nil-cost acquisitions, which you can switch per drop when the facts point the other way. Record why you chose each treatment; that note is what an enquiry will ask for.

This is general information, not personal tax advice.