¿Te worried about how to tax Bitcoin and other crypto when lending them out? Are the interest payments subject to income tax, capital gains tax, or trading rules? This guide focuses exclusively on Crypto Income from Lending and explains what HMRC expects, how to calculate taxable amounts and how to record and declare them.
Key takeaways: what to know in 1 minute
- HMRC treats most lending rewards as income taxable under Income Tax where the receipt is effectively interest or reward, especially for custodial lending and CeFi platforms.
- Capital Gains Tax applies if the lending involves disposal of crypto, for example when interest is paid in a different crypto or when collateral is sold, so tracking cost bases matters.
- Lending can become trading if activity is frequent, organised and profit-seeking; in that case full trading rules and Income Tax on profits apply.
- Declare interest on Self‑Assessment under other UK income and keep accurate records: dates, values in GBP, platform statements and transaction hashes.
- Practical worked examples show step by step calculations for BTC lent, interest paid and how HMRC will expect GBP conversions.
How HMRC treats crypto income from lending
HMRC guidance on cryptoassets treats receipts from lending as one of several possible tax events. The starting point is to identify the nature of the receipt: income, capital return or trading profit.
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Custodial lending or CeFi interest that is credited as a reward is normally treated as income at the time of receipt. HMRC explains this approach in its Tax on cryptoassets guidance. See the official guidance here: HMRC: Tax on cryptoassets.
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Where a lender gives up legal ownership of crypto as part of a loan and that results in a disposal, Capital Gains Tax may be triggered on the disposal event. The precise treatment depends on the contractual terms and whether the lending platform is taking legal title or merely facilitating custody.
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If interest is paid in a different crypto than lent, two tax events can arise: an income event when the interest is received and a disposal event when the interest crypto is later spent or exchanged, creating potential CGT.
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For DeFi and smart contract based lending where the lender retains sole control and ownership, HMRC may still characterise yields as income, but the facts and contract terms are decisive.
Distinguishing income, disposal and reward
- Income: periodic interest or yield credited to an account and available for use. Taxable under Income Tax rules.
- Disposal: where the original asset is transferred away such that a capital event occurs. Taxable under Capital Gains Tax rules when there is a gain.
- Reward: bonus tokens or reward structures often carry both income and later CGT consequences.
Income tax vs capital gains on lent Bitcoin
Clear rules and worked arithmetic help decide whether a receipt from lending Bitcoin is income or capital.
When income tax applies
- Interest credited in BTC, GBP or stablecoin is normally income taxable at the time of receipt.
- The taxable amount is the GBP market value at the point of receipt. HMRC requires conversion into sterling using a reliable market rate for the date received.
When capital gains tax applies
- If the lending arrangement involves a disposal of Bitcoin (for example, the platform sells BTC to provide liquidity), that disposal can trigger CGT based on the difference between disposal proceeds in GBP and the allowable acquisition cost in GBP.
- Subsequent disposals of interest received in BTC may also trigger CGT.
Table: typical outcomes for common lending scenarios
| Scenario |
Primary tax |
Notes |
| Custodial CeFi lending, interest credited periodically |
Income Tax |
Value of interest in GBP at receipt is taxable as income. |
| Collateralised lending where collateral is sold |
Capital Gains Tax |
Sale of collateral is a disposal; compute gain in GBP. |
| Interest paid in a different crypto |
Income Tax now; CGT later on disposal |
Record GBP value at receipt; later disposals may generate CGT. |
When crypto lending counts as trading for HMRC
HMRC assesses trading using established indicators. The key question is whether lending activity constitutes a trading activity rather than a passive investment.
Indicators that lending may be trading
- Activity is frequent and regular, not occasional.
- It is systematic and organised, with businesslike records and clear profit-seeking intent.
- The taxpayer provides services professionally or operates at scale.
- Significant time and resources are devoted to sourcing lending opportunities.
If the tests point to trading, profits from lending will be taxed under Income Tax as trading profits, potentially attracting Class 2 and Class 4 National Insurance for individuals running a trade.
What changes if HMRC treats lending as a trade
- Full trading rules apply: allowable expenses, capital allowances and trading loss rules.
- Records must show revenue, costs and commercial intent.
- Self‑Assessment entries move from 'other income' to 'self employment' or company accounts as appropriate.
How to declare crypto lending interest on Self‑Assessment
HMRC expects clear reporting. The correct box and supporting records depend on the nature of the income.
Step by step declaration route
- If lending income is incidental and non-trading, include it under 'UK other income' on the Self‑Assessment return. Provide totals in GBP per tax year.
- If activity is trading, register for Self‑Assessment if not already and include profits on the self-employment pages, or consider incorporation for larger operations.
- If interest is received via a platform that issues a statement, attach or retain that statement and be ready to provide details if HMRC asks.
Reporting specifics
- Convert every receipt into GBP on the date of receipt using a reliable market rate. If several small receipts occur, aggregate by date or by week with supporting rates.
- Declare gross amounts before expenses. Deductible fees related to earning the income can be claimed where allowed.
- Fees directly associated with earning lending income are allowable where the activity is income producing. Maintain evidence of platform fees paid in crypto and GBP conversions.
Record keeping and evidence HMRC expects for crypto lending
Accurate records are essential. HMRC is explicit that taxpayers must keep sufficient records to support tax returns.
Minimum record set
- Date and time of each lending transaction.
- Type and amount of crypto lent and interest received.
- GBP value at time of each receipt and disposal, with source of rate.
- Platform statements and transaction IDs or smart contract addresses.
- Contract terms showing transfer of legal title or custody arrangements.
Evidence examples accepted by HMRC
- Platform CSV exports and downloadable statements showing timestamps and amounts.
- Blockchain transaction hashes linking receipts to wallet addresses.
- Screenshots are acceptable as supplementary evidence when accompanied by exports.
Retention period
- Keep records for at least 6 years from the end of the relevant tax year, consistent with HMRC guidance.
Checklist: tax steps for crypto lending
1️⃣
Record every receiptDate, crypto, amount, GBP value
2️⃣
Classify the eventIncome, disposal or trading?
3️⃣
Convert to GBPUse market rate at time of receipt
4️⃣
Declare on Self‑AssessmentOther income or trading pages
5️⃣
Keep evidence6 years, CSVs, tx hashes, contracts
Practical tax examples calculating UK crypto lending profits
The following worked examples use realistic GBP conversions and demonstrate typical HMRC calculations.
Example 1: simple custodial lending interest in Bitcoin
Facts
- On 1 September 2025 a lender lends 1.0 BTC to a platform that pays 2% annual interest, paid monthly in BTC.
- Monthly interest for September equals 0.0016667 BTC.
- On 1 September 2025 the BTC/GBP market rate is 35,000 GBP per BTC.
Calculation
- Value of interest in GBP when received = 0.0016667 BTC * 35,000 GBP = 58.33 GBP.
- That 58.33 GBP is income in the 2025/26 tax year and must be declared on Self‑Assessment as other income.
- Repeat the conversion for each monthly receipt using the prevailing GBP rate on the date of payment and aggregate for the tax year.
Notes
- If interest is retained as BTC and later sold, a separate CGT calculation will be needed for the disposal of the interest crypto using the GBP value at disposal minus the GBP value at receipt.
Example 2: interest paid in stablecoin, later converted to GBP
Facts
- 100 USDC received as interest on 15 January 2026. On that date 1 USDC = 0.80 GBP.
- Later, on 1 April 2026 the taxpayer sells 100 USDC for 85 GBP.
Calculation
- Income on receipt = 100 USDC * 0.80 GBP = 80 GBP. Report 80 GBP as income in tax year 2025/26.
- Disposal gain/loss on sale = proceeds 85 GBP minus base cost 80 GBP = 5 GBP gain, subject to CGT rules in 2026/27 if above annual exempt amount.
Example 3: lending that causes a disposal of collateral
Facts
- 0.5 BTC owned at acquisition cost 12,000 GBP. As part of a margin call the platform sells 0.5 BTC for 20,000 GBP.
Calculation
- Disposal proceeds 20,000 GBP minus allowable cost 12,000 GBP = 8,000 GBP gain. CGT applies on the gain subject to reliefs and the taxpayer's annual exempt amount.
Common conversion practicalities
- Use a consistent source for GBP rates, for example a reputable exchange price at a given timestamp. Record the source for each conversion.
- HMRC accepts reasonable approaches as long as they are consistent and documented.
Advantages, risks and common errors
Frequently asked questions
Do I pay income tax on bitcoin lent to an exchange?
Yes. If interest or rewards are credited while custody is with the exchange, HMRC normally treats those receipts as income taxable in GBP at the date received.
How do I convert crypto interest to GBP for tax purposes?
Use a reliable market rate at the time of each receipt and keep a record of the rate source and timestamp for each conversion.
When does lending trigger capital gains tax?
CGT arises where a disposal occurs, for example when the platform sells the lent asset or when interest tokens received are later disposed of.
Can crypto lending be treated as a trade by HMRC?
Yes. If the lending activity is frequent, organised and profit-oriented, HMRC may conclude it is a trade and apply full trading rules.
Where on Self‑Assessment should lending income be declared?
Non-trading lending income should be declared under other UK income on the Self‑Assessment return. Trading lending income goes on the trading pages if running a trade.
How long should records be kept for crypto lending?
Keep records for at least 6 years from the end of the relevant tax year, including platform CSVs and transaction hashes.
Your next step:
- Convert recent lending receipts to GBP now and update the Self‑Assessment totals for the tax year.
- Gather platform CSVs, transaction hashes and contract terms and store them in a secure folder with timestamps.
- If activity is frequent or large scale, consult a tax adviser or consider formal registration for Self‑Assessment trading treatment.