Since October 2025, UK retail investors have been able to gain exposure to Bitcoin through regulated crypto Exchange Traded Notes (ETNs) within a Self-Invested Personal Pension (SIPP).
For long-term investors, this creates an important tax planning opportunity. Investing in Bitcoin inside a pension can produce a very different after-tax outcome compared with holding it personally, even where both investments achieve exactly the same growth.
In this article, we'll compare the two approaches using a simple worked example before looking at some of the factors that can significantly change the outcome in practice.
Contents
- Assumptions
- Tax Relief on Pension Contributions
- Taxation Personal Ownership
- Taxation of Investing Through a SIPP
- Comparing the After-Tax Outcomes
- Further Tax Planning Opportunities
- Applying This to Your Own Situation
- Conclusion
1. Assumptions
Every investor's circumstances are different. However, to isolate the effect of the tax rules, we'll compare the outcomes of an investor making exactly the same investment under exactly the same assumptions.
- Has £10,000 available to invest.
- Expects Bitcoin to increase in value by 10x over next 10 years.
- They are a basic rate taxpayer when making the investment.
- Their only income in retirement is expected to be the State Pension of around £12,570, using up their Personal Allowance.
- The entire investment is sold or withdrawn in one tax year when the increase in value has been achieved.
- No investment charges or platform fees apply.
- Current UK tax legislation remains unchanged.
The purpose of these assumptions is to provide a simple way of comparing the tax treatment of each approach.
2. Tax Relief on Pension Contributions
The first difference occurs before any investment growth takes place.
When an investor buys Bitcoin directly with £10,000, they have £10,000 invested.
By contrast, when a basic rate taxpayer contributes £10,000 to a relief at source pension, HMRC adds a further £2,500 of basic rate tax relief.
As a result, they have £12,500 available to invest rather than £10,000. This additional £2,500 is not investment growth. It represents Income Tax relief on the pension contribution.
In other words, the pension starts with 25% more invested, before any investment growth has taken place.
From this point onwards, we'll assume both investments achieve exactly the same 10x investment return.
3. Taxation of Personal Ownership
Where Bitcoin is held personally, any increase in value is generally subject to Capital Gains Tax when it's disposed of.
The taxable gain is broadly calculated by deducting the original acquisition cost and any allowable costs from the disposal proceeds. Depending on your other taxable income, any resulting gain may be taxed at either 18% or 24%
Using the assumptions set out earlier, the investor has Bitcoin worth £100,000 that originally cost £10,000, creating a capital gain of £90,000.
After deducting the Annual Exempt Amount, the remaining gain of £87,000 is taxed at the current Capital Gains Tax rates. The resulting calculation is shown in Figure 2.
After paying Capital Gains Tax of £18,618, the investor retains £81,382.
As we'll see next, the position can look quite different when the same investment is held through a SIPP.
4. Taxation of Investing Through a SIPP
Where Bitcoin exposure is held through a SIPP, investments can generally be bought and sold without triggering Capital Gains Tax. Instead, tax is usually paid when money is withdrawn from the pension.
Using the assumptions set out earlier, the investor's pension has grown to £125,000.
Of this amount, £31,250 (25%) can normally be taken as a tax-free lump sum, leaving the remaining £93,750 subject to Income Tax.
As explained in the assumptions, we'll also assume the investor receives a full State Pension of £12,570 at the time of withdrawal. Total taxable income for the year would therefore be £106,320. The resulting Income Tax calculation is shown in Figure 3.
As the investor's State Pension is assumed to be fully covered by their Personal Allowance, the Income Tax shown here is attributable to the withdrawal from the SIPP.
After paying Income Tax of £31,224, the investor retains £93,776.
Although pension withdrawals may be subject to Income Tax, the combined effect of upfront pension tax relief and the ability to withdraw 25% of the pension tax free still results in a higher after-tax outcome under the assumptions used in this example.
5. Comparing the After-Tax Outcomes
The worked examples above illustrate how the same investment can produce very different after-tax outcomes depending on how it is held.
| Invested Personally | Invested Through a SIPP | |
|---|---|---|
| Amount invested | £10,000 | £12,500 |
| Value after growth | £100,000 | £125,000 |
| Total tax paid | £18,618 | £31,224 |
| Amount retained after tax | £81,382 | £93,776 |
In this worked example, investing through a SIPP leaves the investor with £12,394 more after tax than holding it personally.
The difference arises from the combined effect of upfront pension tax relief and the ability to withdraw 25% of the pension, including part of both the original investment and the investment growth, free from tax.
Whether this level of tax saving is achievable in practice depends on your own circumstances, including your current Income Tax position, expected retirement income and existing pension arrangements.
6. Further Tax Planning Opportunities
Additional Income Tax Relief
The worked example assumes the investor receives basic rate tax relief on their pension contribution. However, higher and additional rate taxpayers may be entitled to further Income Tax relief, increasing the tax benefit available when the contribution is made.
This can make investing through a SIPP even more attractive, particularly where withdrawals are expected to be taxed at a lower marginal rate in retirement.
Flexible Pension Withdrawals
Once investments are held within a SIPP, they can be bought without triggering Capital Gains Tax. This means an investor could dispose of part or all of their investment within the pension and then decide when, and how much, to withdraw based on their personal tax position.
For example, rather than withdrawing the entire pension in one year and being subject to 40% tax on part of their drawdown, as illustrated in section 4, an investor may choose to spread withdrawals across multiple tax years. Depending on their other taxable income, this may allow withdrawals to be made in a way that is subject to tax at only 20%. In the example used in this article, that could reduce the tax liability in Section 4 from £31,224 to £19,382, a saving of £11,842 from a well planned withdrawal strategy.
The most appropriate withdrawal strategy depends on a range of factors, including other sources of taxable income and expected tax rates.
7. Applying This to Your Own Situation
Although the worked example illustrates the tax principles involved, it has intentionally been simplified to provide a clear comparison.
In practice, the most tax-efficient approach will depend on your personal circumstances, including:
- Whether you're a basic, higher or additional rate taxpayer when making the pension contribution.
- Your expected taxable income from other sources when you intend to draw on your pension.
- Your existing pension contributions and relevant earnings, which may affect how much you can contribute to a pension.
These factors can materially affect whether holding Bitcoin through a SIPP is likely to be the most tax-efficient approach and, if so, by how much.
It's also worth considering that :
- Investments held within a pension generally cannot be accessed until Normal Minimum Pension Age, which is currently 55 but is due to increase to 57 from April 2028.
- Tax rates, allowances, and pension rules are all subject to change.
Finally, estate planning should also form part of the decision. Under current proposals, most unused pension funds will fall within the scope of Inheritance Tax from April 2027. Depending on the circumstances, beneficiaries may also pay Income Tax when drawing inherited pension benefits. The interaction between Income Tax and Inheritance Tax could therefore influence whether holding Bitcoin through a pension remains the most appropriate long-term strategy.
The worked example demonstrates that the choice of investment wrapper can have a significant impact on the amount ultimately retained after tax. However, the most tax-efficient approach will depend on your individual circumstances.
Conclusion
This worked example demonstrates that the choice of investment wrapper can have a significant impact on the amount ultimately retained after tax. However, deciding whether a SIPP is appropriate involves much more than comparing headline tax figures.
Your current Income Tax position, expected retirement income, pension allowances and long-term objectives can all influence which approach is likely to be most tax efficient.
If you're considering investing in Bitcoin through a SIPP, obtaining advice before investing can help ensure the structure is appropriate for your circumstances.
At Cryptoccountant, we advise clients on the tax implications of their crypto investments, helping them understand how different investment structures could affect their long-term tax position.
If you're considering investing in Bitcoin through a SIPP and would like tailored advice based on your own circumstances, get in touch to arrange a consultation.
