Do tax rules on NFT royalties feel unclear? Many creators and collectors are uncertain whether secondaryâsale royalties are taxed as income or reduce the sellerâs capital gain. This guide gives clear, practical answers for the UK: when royalties create income tax, when Capital Gains Tax (CGT) applies, how to calculate CGT on secondary sales that involve royalty mechanisms, how and when to report to HMRC, and robust recordâkeeping and valuation tips for audits.
Key takeaways: What to know in 1 minute
- Royalty receipts to creators are ordinarily taxable as income where the receipt arises from the creatorâs continuing right to receive payments. Treat royalties like trading/author income unless facts point to capital treatment.
- Secondary sales by holders usually trigger CGT if the disposal is of a chargeable asset and not trading stock. Royalty payments from the sale do not automatically reduce the sellerâs CGT base cost.
- Automatic onâchain royalties paid in crypto present two tax events: the payer may have a disposal and the recipient has either income (when right to royalty is active) or a receipt on disposal â clear records and valuation at GBP spot are essential.
- Report royalties on Self Assessment: creators should use the selfâemployment or other income boxes where appropriate; capital disposals go in the Capital Gains section. When in doubt, disclose in a covering note.
- Keep full evidence: smart contract terms, transaction hashes, wallet addresses, timestamps, exchange rates used and fee breakdowns. HMRC expects reconcilable, timestamped records.
How NFT royalties are treated for CGT in the UK
UK taxation separates income tax and Capital Gains Tax. For NFTs, HMRC treats cryptoassets as property for CGT purposes in many dispositions, but royalty flows complicate the picture.
- If a person disposes of an NFT (sale, gift, exchange), that disposal is potentially a chargeable disposal for CGT where the asset is not trading stock. The gain is the difference between disposal proceeds and allowable base cost.
- Royalties themselves are typically not a reduction of the sellerâs disposal proceeds. A royalty is a separate contractual or technical payment from buyer to a third party (often the creator) and does not usually alter the vendorâs gross receipt unless the sale contract explicitly deducts it from the vendorâs price.
- Where a creator receives royalties, those receipts are commonly taxable as income â either as miscellaneous income, receipts from selfâemployment, or copyright/royalty income depending on the legal rights and the commercial context.
Practical implication: when a collector sells an NFT and an automatic royalty is routed to the creator by the marketplace contract, the seller must still treat their gross receipts as the total consideration received for the disposal; the royalty is a separate payment to the creator, not a deduction for the sellerâs CGT unless the contractual terms evidence a net price.
Distinguishing royalty income from capital gains for creators
The key test is the nature of the receipt.
- Income tax treatment (royalty income) applies where the receipt stems from: a continuing right to receive periodic payments; a business of creating/licensing; or where payments are a reward for services or ongoing exploitation of intellectual property. Typical signs: frequent receipts, active promotion/licensing, professional presentation and scale.
- Capital treatment applies rarely and only where the receipt arises from disposal of a capital asset (for example, selling the copyright or the entire collectible bundle) and the payment is a lump sum representing capital proceeds.
Checklist to decide:
- Is the creator still retaining an ongoing legal right to future payments? If yes â lean income tax.
- Is the receipt statutory or contractual royalty for use/licence? If yes â income tax likely.
- Is the creatorsâ activity episodic and the payment a oneâoff capital realisation of a right? If yes â possible CGT.
Link to HMRC guidance: HMRC: Tax on cryptoassets.
Examples: creators' scenarios
- A digital artist mints an NFT and the smart contract routes 10% of every secondary sale to the artistâs wallet. That 10% is normally taxable as income on receipt and should be converted to GBP at the spot rate on the date received.
- A studio sells the entire IP and transfers copyright in one transaction receiving a single lump sum. That may be a capital receipt and could be subject to CGT, not income tax, depending on contract specifics.
Calculating CGT on secondary market NFT royalties
Calculating CGT for a seller on a secondary sale where royalties exist requires careful allocation and recordâkeeping.
Steps to calculate a straightforward CGT on disposal:
- Determine the gross disposal proceeds in GBP (convert any crypto received using a reliable market rate at the time of receipt).
- Establish the allowable base cost (what the seller originally paid or acquisition cost, plus allowable costs like transaction fees, gas if capital in nature, and platform fees). When the seller acquired the NFT in a nonâmonetary way (e.g., airdrop, mint with gas), HMRC expects a reasonable market value at acquisition.
- Subtract allowable costs from proceeds to determine the gain.
- Apply any reliefs, annual exemption (if available), or pooling rules.
Important: royalty paid to a third party does not automatically reduce the sellerâs disposal proceeds. Only if the contract or invoice shows the seller received a net price after deduction of the royalty (i.e., the buyer paid the seller less because royalty is routed out of the sellerâs proceeds) should the seller reduce disposal proceeds. Where the marketplace deducts a royalty before forwarding the remainder to the seller, the sellerâs received amount is the actual proceeds â however the legal economic arrangement should be documented.
Worked example (realistic numbers)
- Seller sells NFT on a marketplace for crypto equivalent to ÂŁ10,000 at time of sale.
- Marketplace automatically routes a 7% royalty (ÂŁ700 equivalent) to the creator before remitting the remainder to the seller. Platform fee is 2% (ÂŁ200). Gas costs borne by seller ÂŁ50.
Two possible legal realities:
A) Marketplace headline price ÂŁ10,000; market transfers ÂŁ700 to creator, ÂŁ9,300 to seller. Sellerâs disposal proceeds are ÂŁ9,300 (what was actually received). CGT calculation uses ÂŁ9,300 less base cost.
B) Marketplace shows sale price ÂŁ10,000 paid by buyer; but the sellerâs contract or platform terms state seller receives gross and pays royalty separately. If the legal sellerâs received amount is ÂŁ9,300, that is the disposal proceed; if the seller contractually remained liable for royalty and had to remit ÂŁ700 later from proceeds, the economic reality is the same â disposal proceed is net received. Document the platform receipts and contract terms.
When royalty payments trigger a taxable disposal
Royalty payments can cause several taxable events depending on structure:
- For the royalty recipient (creator): receiving a royalty in crypto or fiat is usually a taxable receipt as income at the moment of receipt. If the royalty arises because of assignment/sale of a capital right, the payment could be capital rather than income, but this is less common.
- For the payer or intermediary: where crypto is used to satisfy a royalty, the payer may incur a disposal of crypto (a taxable event for that payer) because spending crypto is a disposal for CGT purposes unless the payer is trading in crypto as a business.
- For the NFT holder who receives a royalty via smart contract (e.g., fractionalised rights): if the holderâs rights change as a result of the royalty mechanism (for example, a reduction of a bundle or a partial transfer), that structural change may be a disposal.
In short: receipt of a royalty typically triggers income tax for recipient and may trigger CGT for crypto payers who surrendered crypto to make the payment.
Reporting NFT royalties to HMRC on selfâassessment
Reporting depends on whether the receipt is income or a capital gain.
- Creators with royalty income: report through the Self Assessment tax return. If the royalties arise from a trade, use the selfâemployment pages (or the additional income pages for miscellaneous income). If they are passive licence receipts, report under âother UK incomeâ or relevant partnership pages if appropriate.
- Sellers with capital disposals: report gains or losses in the Capital Gains section. Include details of the asset, sale date, proceeds in GBP, allowable costs and the calculation of the gain.
Practical guidance for boxes/sections:
- Royalty receipts that are trading/professional â Selfâemployment pages (or partnership/selfâemployed supplementary pages).
- Royalty receipts that are incidental or passive â âOther UK incomeâ box with explanatory note.
- Capital gains from disposals â âCapital gains summaryâ pages. If total gains exceed the annual exempt amount, complete the full disposal schedule.
If the tax position is novel or complex, include a covering note in the return explaining the basis of computation and refer to sources of valuation and exchange rates used.
Link to HMRC return guidance: HMRC: Self Assessment.
When to consider VAT and international withholding
- VAT is rarely charged on the sale of an NFT itself unless the supply is a service in scope; the VAT position depends on the underlying supply and location of parties.
- Crossâborder royalty payments may attract withholding in the payerâs jurisdiction. UK creators receiving royalties from abroad should check double taxation treaties and claim relief where appropriate.
Record keeping and valuation tips for NFT taxes
HMRC expects records that reconcile easily. For NFTs and royalties, the following are essential:
- Transaction hashes and blockchain explorer URLs for each receipt and disposal.
- Platform invoices and smart contract code or screenshots showing royalty rules.
- Wallet addresses associated with receipts and payments.
- Spot exchange rates used to convert crypto to GBP on each receipt/disposal date and the source for the rate (e.g., CoinMarketCap, CoinGecko, or a major exchange).
- Evidence of acquisition cost (mint receipts, buyer invoices, airdrop evidence) and any attributable fees (gas, listing fees).
Valuation tips:
- Use a consistent reliable exchange or methodology for conversion and state the method in records.
- When an NFT was acquired in a nonâmarket transaction (e.g., received as a reward), estimate a fair market value at acquisition using comparable sales and document the rationale.
- Retain smart contract code or link to immutable onâchain data demonstrating royalty mechanics, as HMRC will consider legal substance over form.
Practical comparative table: royalty income vs capital gain treatment
| Feature |
Typical royalty income |
Typical capital gain |
| Trigger |
Ongoing payments from exploitation/licensing |
Disposal of the asset (sale, exchange, gift) |
| Tax type |
Income tax / National Insurance where trade |
CGT (after allowances) |
| Typical record evidence |
Royalty ledger, smart contract, payment receipts |
Sale invoice, blockchain tx, acquisition receipts |
| Conversion needs |
Convert each receipt to GBP at time received |
Convert disposal proceeds and acquisition cost to GBP |
Royalties and CGT at a glance
Step 1 â
â Determine whether the receipt is income or capital (check rights and contract)
Step 2 ⥠â Convert crypto receipts/disposals to GBP using a consistent rate source
Step 3 đ§Ÿ â Report income on Self Assessment or gains in Capital Gains section
Step 4 đ â Keep blockchain proof, contracts and valuation notes for 6 years
Advantages, risks and errors to avoid
â
Benefits / when to apply:
- Clear tax position for creators who treat royalties as income â consistent reporting reduces audit risk.
- CGT for collectors can allow use of annual exemption and capital losses to offset gains.
- Onâchain transparency often provides strong evidence of receipts and timestamps.
â ïž Errors and risks to avoid:
- Failing to convert crypto receipts to GBP at the correct date and source rate.
- Assuming royalties reduce a sellerâs disposal proceeds without documentary evidence.
- Not recording smart contract terms or marketplace receipts that demonstrate the economic arrangement.
Frequently asked questions
Are NFT royalties taxable in the UK?
Yes. Royalties received by creators are generally taxable as income unless the payment is clearly the proceeds of a capital disposal. Convert crypto receipts to GBP at spot on receipt.
Do royalties reduce capital gains for the seller?
Not automatically. Only reduce disposal proceeds if the legal/economic arrangement shows the seller received a net price after royalties; always retain evidence from the marketplace or contract.
How should royalties paid in crypto be reported?
Report the GBP value of the crypto at the time of receipt. Creators report as income; payers who spend crypto may have a separate disposal for CGT.
Which HMRC boxes should be used for royalties?
If royalties are trading-like, use selfâemployment pages; otherwise use âother UK incomeâ. Capital gains go in the Capital Gains section. Add an explanation note if needed.
What records does HMRC want for NFT royalties?
Transaction hashes, contract terms, receipts/invoices, wallet addresses, exchange rates used and fees. Keep records for at least six years.
Does VAT apply to NFT royalties?
VAT depends on whether the supply is a taxable service and on the partiesâ locations. Seek specialist advice for VATâsensitive arrangements.
Can foreign withholding tax affect UK creators?
Yes. Creators receiving royalties from overseas should check treaty relief and claim foreign tax credit where applicable.
What happens if royalties are paid automatically by a marketplace?
Automatic payments still create taxable receipts. Document the marketplace flow and confirm whether proceeds were gross or net for the seller.
Your next step:
- Review smart contract code and platform terms to determine whether royalties are separate receipts or net deductions.
- Assemble transaction evidence (tx hashes, GBP conversion rates, platform receipts) for every receipt and disposal in a single spreadsheet.
- If the position is uncertain, include a clear disclosure in Self Assessment and consider taking preâsubmission advice from a tax professional.