How Are Crypto Airdrops Taxed in the UK?

Airdrops are a common way to receive free crypto tokens, but free does not mean tax-free. HMRC has specific rules about how airdrops are taxed in the UK, and the treatment depends on why you received the tokens.

Unexpected airdrops

If you receive tokens without doing anything to earn them — a project simply sends tokens to all holders of another coin — HMRC considers this a "no-cost acquisition." You pay no income tax when you receive them, and your cost basis is zero. When you eventually sell or swap these tokens, the entire proceeds are a capital gain.

Airdrops in exchange for a service

If you had to do something to receive the airdrop — follow social media accounts, join a Discord, provide liquidity, use a protocol, or complete tasks — HMRC treats this as miscellaneous income. You owe income tax at your marginal rate on the GBP value of the tokens at the time you receive them. The taxable value then becomes your cost basis for future CGT calculations.

Hard forks

When a blockchain forks and you receive new tokens (like Bitcoin Cash from Bitcoin), HMRC treats the new tokens as having a cost basis of zero. No income tax is due at the time of the fork. When you dispose of the forked tokens, the full proceeds are subject to CGT.

Practical example

You receive 1,000 tokens from a DeFi protocol airdrop after using their platform for six months. At the time of receipt, each token is worth £0.50, giving you £500 of miscellaneous income. Three months later, the token rises to £2.00 and you sell. Your cost basis is £0.50 per token (the value at which you were taxed), so your capital gain is £1,500 (£2,000 proceeds minus £500 cost basis).

The £1,000 trading allowance

If your total miscellaneous income from airdrops and other small earnings is under £1,000 in a tax year, you can use the trading allowance to avoid reporting it. Above that threshold, you must include it on your Self Assessment. Keep records of every airdrop — date, token, amount, GBP value, and what you did to receive it.