Non-fungible tokens (NFTs) are unique digital assets. They often represent art, music, in-game items or access passes. But when it comes to tax, their uniqueness is what matters most.
This guide explains how NFTs are taxed under Capital Gains Tax (CGT) in the UK, how they differ from cryptocurrencies like Bitcoin or Ethereum, and what that means in practice when it comes to tracking and reporting your activity.
Contents
- 1. Capital Gains Tax Treatment of NFTs
- 2. Why Pooling Rules Do Not Apply to NFTs
- 3. Calculating Gains or Losses
- 4. Record-Keeping for NFT Transactions
- Conclusion
1. Capital Gains Tax Treatment of NFTs
HMRC treats NFTs as digital assets that fall within the scope of Capital Gains Tax when disposed of by a UK resident.
A disposal occurs when you reduce your holding in an NFT. This includes:
- Selling an NFT for fiat or crypto
- Swapping one NFT for another
- Gifting an NFT to someone other than your spouse or civil partner
- Using an NFT to pay for goods or services
As with other cryptoassets, the gain or loss is calculated based on the difference between what you paid and what you received, using pound sterling values at the time of each transaction.
In practice, many NFT holders do not realise that trades and swaps are taxable events, which can lead to underreporting if records are not kept properly.
2. Why Pooling Rules Do Not Apply to NFTs
The key difference between NFTs and fungible cryptoassets is that NFTs are not pooled.
Under HMRC rules, assets like Bitcoin or Ethereum are grouped into section 104 pools, where costs are averaged across holdings. NFTs do not fall within this treatment.
Each NFT is treated as a separate and individually identifiable asset. This means:
- No averaging of costs
- No same-day or 30-day matching rules
- Each NFT must be tracked and reported individually
For investors holding a small number of NFTs, this may be straightforward. However, where multiple NFTs are acquired and traded, tracking individual values and transactions can quickly become cumbersome.
3. Calculating Gains or Losses
Each NFT is treated as its own asset for CGT purposes, so calculations are performed on an individual basis.
You should record:
- Acquisition cost: what you paid in GBP at the time
- Disposal proceeds: what you received in GBP, or the market value at the time of disposal
- Gain or loss: disposal proceeds minus cost
- Allowable fees: such as gas fees or platform charges directly related to the transaction
If the NFT was not purchased, for example if it was received as an airdrop or reward, the base cost is usually the market value at the time of receipt or nil.
The correct treatment depends on the circumstances in which the NFT was received. See our guide to crypto airdrops and tax for further detail.
Valuation can be difficult in practice, particularly where NFTs are illiquid or there is limited pricing data.
4. Record-Keeping for NFT Transactions
Because NFTs are not pooled, each one must be tracked individually. This is where many investors encounter issues when preparing their tax return.
For every acquisition and disposal, you should keep a clear record of:
- The token ID or reference
- The date and time of the transaction
- The value in pounds sterling
- The wallet address or platform used
While some crypto tax software supports NFTs, coverage is not always complete. Records often need to be reviewed and supplemented manually to ensure accuracy, particularly around base costs when NFTs are first acquired.
Conclusion
NFTs are subject to Capital Gains Tax in the UK, but they are treated differently from cryptocurrencies. Because pooling rules do not apply, each NFT must be tracked and reported as a separate asset.
As NFT activity increases, the practical challenge is often about ensuring base costs are properly recorded, otherwise gains can be overstated when they are ultimately disposed of.
If you are unsure whether your NFT activity has been recorded correctly, we would be happy to review your situation and help you understand your reporting position.
