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Airdropped tokens are increasingly common, but the tax treatment in the UK depends on how those tokens are valued when received and when disposed of. This guide explains practical, HMRC-aligned methods to value airdrops, step-by-step calculations, record templates and examples for both liquid and illiquid tokens so a taxpayer can reach defensible figures for self-assessment.
Key takeaways: what to know in 1 minute
- Airdrop value is taxable on receipt if it meets income criteria; otherwise it forms part of base cost for capital gains tax.
- Fair market value (FMV) at the time of receipt is the starting point; market price, comparables and modelling are accepted where markets are thin.
- For disposals, calculate capital gain as proceeds minus total allowable cost (including FMV at receipt and transaction costs).
- Robust record-keeping (timestamps, sources, screenshots, spreadsheet) is essential to defend FMV with HMRC.
- When in doubt use multiple valuation methods, reconcile results and document the chosen primary method.
How HMRC treats bitcoin and other cryptoassets for tax purposes
HMRC treats cryptoassets as property for tax purposes. The classification affects whether an airdrop triggers income tax or capital gains tax. The HMRC cryptoassets manual clarifies that tokens may be taxed as: income (if received in connection with employment, trade or as a reward), or a capital asset for CGT when held as an investment. When an airdrop is received, the key question is whether it represents earnings (taxable as income) or a gratuitous receipt to the holder (initially outside income but creating a base cost for CGT).
Why valuation method matters for airdrops
Valuation at receipt determines the base cost for any subsequent capital gains calculation. If HMRC treats the receipt as income, the value adopted at the time of receipt determines the taxable income amount (subject to PAYE/self-assessment). If the receipt is not income, the valuation becomes the taxpayer’s cost basis for CGT. Poorly documented valuations create audit risk and potential re-assessments.
Airdrop valuation methods: overview and when to use each
The following methods are the practical options used in the UK. Each method is legitimate if applied consistently and documented.
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Market price method
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Use when the token is listed on a reputable exchange with observable bid/ask around the receipt timestamp.
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FMV = transaction-weighted mid-market price at the timestamp (or nearest minute) converted to GBP using a reliable fiat pair or aggregator.
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Volume-weighted average price (VWAP)
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Use when the token is traded on multiple venues or the single exchange has volatile prices.
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FMV = volume-weighted average price over a defined window (e.g. 1 hour, 6 hours) around the receipt.
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Comparable token method (proxy)
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Use when the token is unlisted but has closely comparable tokens (same protocol, liquidity tier).
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FMV = price of comparable token scaled by relevant metrics (market cap, circulating supply) with documented rationale.
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Net asset / treasury-value method
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Use for tokens that represent shares of a treasury or project assets (e.g. LP tokens). Value the pro rata share of reserves.
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Tokenomics modelling (discounted future utility)
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Use when value derives from future utility or rights (vesting, governance). This is more subjective and should be a last resort with conservative assumptions and sensitivity analysis.
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Zero-value with evidence
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Use only if airdrop has no detectable market, no utility and no reasonable comparables. Even then, taxpayer should document why FMV is effectively zero.
Step-by-step: market price method (recommended for liquid tokens)
Step 1: capture the timestamp and receipt evidence
- Record the exact UTC timestamp of receipt from the wallet transaction, blockchain explorer screenshot, and platform notification.
- Save exchange feed screenshots or API export covering the timestamp.
Step 2: select the price source and conversion path
- Prefer a major exchange with high liquidity for that token pairing. If token trades against USDT/BTC/ETH, obtain the token:USD (or stablecoin) price and convert to GBP via the same timestamp FX rate.
- Save API endpoints used (e.g. CoinGecko, exchange REST API) and include the query string or CSV export in records.
Step 3: calculate FMV
- Use mid-market price (bid+ask)/2 at timestamp or VWAP if volatility large.
- Convert to GBP using the authoritative GBP rate at the same timestamp (e.g. Bank of England or a reputable FX aggregator). Document the source.
Formula example:
- FMV_GBP = (token_price_USD_at_t × USD_to_GBP_rate_at_t)
If multiple exchanges used, calculate the weighted average by reported volume.
Step 4: record and reconcile
- Store the calculation in a spreadsheet row: timestamp, txid, token amount, price source, price, FX source, FMV_GBP, method used and notes.
- If VWAP used, show window and weights.
Example: market price calculation (realistic numbers)
- Receipt: 1,000 TOKEN on 2025-09-15 14:23:10 UTC (txid and explorer link saved)
- Source: Exchange A mid-market at timestamp = 0.12 USD; USD/GBP rate = 0.78
- FMV_GBP = 1,000 × 0.12 × 0.78 = £93.60
If HMRC treats receipt as income, £93.60 is the taxable amount. If not, £93.60 is the initial cost for CGT.
Valuing illiquid or unlisted airdrops: practical approaches
- Use the comparable token method. Identify 2–3 comparables and compute a range; take the conservative mid or lower quartile and document adjustments.
- Use treasury-value method for liquidity pool tokens: value underlying assets at timestamp, allocate pro rata share and convert to GBP.
- If token is subject to vesting or transfer restrictions, apply a conservative discount (document discount schedule and rationale). Do not invent precision; show range and sensitivity.
Using multiple methods and reconciling results
When markets are thin, apply two methods (e.g. comparables and tokenomics modelling), produce a range, and choose a defensible point with justification. Keep the alternative method calculations in records to show conservative judgement if HMRC queries the figure.
How to treat token splits, burns and forked airdrops
- For forks, HMRC’s position can follow general crypto rules: value the new tokens at receipt using the same valuation methods.
- If a subsequent token split or burn affects value before disposal, the allowable cost should reflect adjustments; document all chain events and revalue where necessary.
Calculating capital gains on bitcoin and token disposals that follow an airdrop
- Capital gain = proceeds in GBP on disposal − allowable costs.
- Allowable costs include: FMV at receipt (if not taxed as income), fees for acquisition and disposal, and a reasonable apportionment for pooled assets (HMRC pooling applies to similar items such as identical cryptoassets; see the cryptoassets manual for pooling rules).
Example calculation:
- Received 1,000 TOKEN, FMV at receipt £93.60 (see earlier example)
- Later sold 500 TOKEN for £150. Proceeds = £150. Cost for that disposal = 500/1000 × £93.60 = £46.80
- Gain = £150 − £46.80 = £103.20 (less any allowable fees)
When bitcoin income is taxable as income: rules and valuation impact
An airdrop is taxable as income where it arises from trade, employment, or where it is a reward for services or an incentive scheme. Examples include token rewards for validators paid for service or tokens issued under airdrop to contributors when designed as remuneration.
- If income tax applies, the FMV at the time of receipt forms the taxable amount and must be reported on self-assessment or via PAYE if an employer is involved.
- NICs may also apply depending on the facts.
Record-keeping and reporting obligations to HMRC for airdrops
Essential records to keep for each airdrop:
- Blockchain transaction ID, wallet addresses, and timestamp.
- Exchange screenshots or API outputs showing prices at the receipt timestamp.
- Spreadsheet row per airdrop with method chosen, calculations, FX rates and source links.
- Whitepapers, tokenomics docs, vesting schedules and any airdrop terms.
- Communications or platform notifications showing allocation amounts.
Records should be retained for at least six years to meet HMRC enquiry windows.
HTML comparative table: methods, when to use and documentation required
| Method |
Best when |
Documentation to keep |
| Market price |
Token listed with good liquidity |
Exchange API output, screenshots, FX rate |
| VWAP |
High volatility or multi-venue trading |
VWAP calculation, time window, raw data |
| Comparable token |
Unlisted token with close proxies |
Comparables list, adjustment rationale, market caps |
| Treasury/LP valuation |
Tokens representing reserve assets or LP shares |
Reserve balances, on-chain proof, pro rata calc |
Stepwise valuation workflow
Airdrop valuation workflow
📥 Step 1 → capture receipt timestamp + txid
🔎 Step 2 → select price source (exchange/API)
📊 Step 3 → apply method (market/VWAP/comparable)
🧾 Step 4 → convert to GBP and store calculation
✅ Step 5 → choose primary method, keep alternatives
Advantages, risks and common mistakes
Benefits: when to apply each valuation method ✅
- Market price and VWAP offer objective evidence for listed tokens. Use these to minimise subjective judgement.
- Comparable and treasury methods allow valuation for illiquid tokens while still linking to observable metrics.
- Multiple-method reconciliation reduces challenge risk and shows conservative practice.
Errors and risks to avoid ⚠️
- Failing to record the exact timestamp or source of price data.
- Using an exchange with negligible liquidity as the primary price source without adjustment.
- Choosing a valuation that inflates value without documented rationale.
- Ignoring vesting or transfer restrictions when setting FMV; these often reduce value.
Using tax allowances, reliefs and the tax year when airdrops matter
- If an airdrop generates income, it is taxed in the tax year of receipt (6 April – 5 April). Ensure inclusion on the correct self-assessment year.
- CGT allowances (annual exempt amount) apply at the disposal stage. If gains fall below the allowance, no CGT is due; nevertheless, maintain records.
- Entrepreneurs’ Relief or other reliefs rarely apply to airdrops unless connected to a qualifying business disposal; specialist advice recommended.
Recent UK policy updates affecting bitcoin tax (2024–2026)
- HMRC has expanded guidance on cryptoassets and valuation detail in the cryptoassets manual (see link above). The latest updates emphasise provenance of value, timestamped evidence and pooling rules.
- Increased HMRC enquiries into staking and reward schemes means conservative and documented valuation will reduce exposure to adjusters.
- Any material policy change must be monitored via HMRC pages: HMRC collection: tax on cryptoassets.
Practical templates and record checklist (what to keep for each airdrop)
- Blockchain txid and explorer link (screenshot and link).
- Platform or wallet notification confirming allocation.
- Price evidence: exchange API output or CoinGecko/CoinMarketCap export for timestamp.
- FX evidence for GBP conversion (e.g. Bank of England rate or Reuters feed).
- Spreadsheet row with method, calculation, and rationale.
- Any vesting schedule or contractual document.
Frequently asked questions
How should an unlisted airdrop be valued for HMRC?
Use comparables or treasury-value methods, document the adjustments and show why a listed-market price is not available. Provide a conservative, well-sourced single figure and store alternatives.
When is an airdrop taxed as income rather than capital?
When tokens are received in return for services, as part of employment, or as trading receipts, HMRC treats them as income. Evidence of performance or contractual reward points to income treatment.
Can the value of an airdrop be zero for tax purposes?
Yes, but only with strong evidence: no market, no utility, no comparables and no foreseeable value. Document why the FMV is effectively nil.
Which FX rate should be used to convert token price to GBP?
Use a reliable FX source and the rate at the same timestamp as the token price. Document the provider (Bank of England, Reuters, or the exchange's GBP pair).
How long should valuation records be kept?
Retain records for at least six years to meet HMRC enquiry windows for tax returns.
What if HMRC disputes the chosen valuation method?
Provide the full calculation, alternative methods, and why the chosen method was the most reliable. If necessary, seek a specialist independent valuation report.
- Export and timestamp evidence for any airdrops received this tax year and add them to a dedicated spreadsheet row.
- Choose the primary valuation method per receipt (market/VWAP/comparable) and record supporting sources and calculations.
- If holdings are significant or complex (vesting, illiquid tokens), obtain specialist tax advice and consider an independent valuation to strengthen submission.