You made £8,000 in AI trading profits this tax year. Self Assessment is due. You sit down to fill in the return and realise you have no idea what to enter. Was it capital gains? Income? Did the £3,000 annual exemption cover any of it? Do crypto-to-crypto swaps count even though no GBP changed hands? What records does HMRC expect you to keep, and can you reconstruct them now if you did not keep them as you went?

Almost every new UK trader goes through this exact sequence in late January, and almost all of them leave it later than they should. The good news is that the rules are not complicated once you understand the framework. The bad news is that the cost of getting them wrong has gone up significantly: the CGT annual exemption has fallen from £12,300 in 2022/23 to £3,000 in 2025/26, and the rates on share and crypto gains rose from 10%/20% to 18%/24% in the October 2024 Budget. More retail traders now face a meaningful tax bill on relatively modest gains.

CGT vs income tax: which applies to your AI trading profits?

For most UK retail AI traders, profits are subject to capital gains tax. CGT is the default treatment for someone managing their own investments, even active ones. But HMRC has the right to reclassify activity as a trade — meaning the profits are taxed as income at your marginal rate (20%, 40%, or 45%) rather than at CGT rates (18% or 24%). The reclassification almost always increases the tax bill, and at the highest end it can roughly double it. Knowing where the line sits matters.

HMRC uses a long-standing test, derived from case law, to distinguish investment activity from trading. The test looks at the overall pattern of activity rather than any single feature. The factors HMRC considers include the frequency and number of transactions, the way the activity is organised, the time spent, the profit motive, the length of holding, the source of finance used, and whether the activity is the person’s main source of income. No single factor is decisive — the picture as a whole determines the classification.

For a typical UK retail AI trader with a part-time approach, a £4,000 to £40,000 allocation, and a primary income from employment, CGT is almost always the correct treatment. The activity looks like investment management. The risk of reclassification rises if the trader spends long hours daily, derives a meaningful share of total income from trading, runs the activity from a registered business structure, or claims business expenses against trading income.

Specific scenarios that move a trader closer to income-tax treatment include trading as a primary occupation, full-time activity (40+ hours per week), claiming the activity as self-employment for National Insurance purposes, running a registered limited company that holds the trading account, and operating a scale that exceeds personal-investment thresholds in HMRC’s judgment. The income-tax outcome is not always negative — business losses can offset other income, and business expenses are deductible — but for most retail traders the higher headline rate dominates the comparison.

UK CGT and income tax rates for 2025/26 and 2026/27

The figures below apply to the 2025/26 and 2026/27 tax years. The CGT annual exempt amount is £3,000 for individuals — frozen for now and unchanged from 2024/25. Above that allowance, gains on shares, crypto, and most non-property assets are taxed at the rates set by the October 2024 Budget and effective from 6 April 2025.

The CGT rate is determined by your total taxable income for the year — your salary or pension income plus the gain itself. If adding the gain to your other taxable income pushes you above the £50,270 basic-rate band, the portion above is taxed at 24%. A basic-rate taxpayer with £20,000 of taxable employment income and a £15,000 AI trading gain would deduct the £3,000 exemption to leave a £12,000 chargeable gain. Their basic-rate band has £30,270 of headroom, so the entire £12,000 falls within basic rate and is taxed at 18% — a CGT bill of £2,160. A higher-rate taxpayer with the same gain pays 24% on the chargeable amount, a bill of £2,880. The £720 difference matters and grows with the size of the gain.

How HMRC treats crypto specifically

HMRC publishes the Cryptoassets Manual, which sets out the agency’s detailed view of how UK tax law applies to crypto activity. Five principles are worth holding in mind. First, crypto is treated as an asset for CGT purposes, not as currency — gains from selling are subject to CGT, not income tax (unless badges of trade apply). Second, every disposal is a CGT event: selling crypto for GBP, swapping one crypto for another, using crypto to pay for goods or services, or gifting crypto to anyone other than a spouse or civil partner. Third, crypto-to-crypto trades are taxable even though no GBP changes hands — the gain is calculated on the GBP value of the crypto received minus the GBP cost basis of the crypto disposed of. Fourth, airdrops, staking rewards, and yield from DeFi activities have specific HMRC treatment that varies by mechanism, generally taxed as miscellaneous income or trading income depending on facts. Fifth, the Cryptoassets Manual is updated regularly as HMRC develops its interpretation, so checking the current version before relying on a tax position is sensible practice.

A new layer arrives from 1 January 2026, when crypto trading platforms in the UK are required to collect detailed customer information on every trade and report it to HMRC, aligning with the OECD’s Crypto-Asset Reporting Framework. This means HMRC will receive direct data on UK-resident trading activity from registered platforms going forward. The implication for self-reporting is straightforward: discrepancies between your Self Assessment and the platform-reported data are likely to be flagged.

Section 104 pooling: the rule that catches everyone

When you hold the same asset across multiple purchases at different prices, HMRC applies the Section 104 pooling rule. The pool is the average cost basis of all your holdings of that asset. When you sell, the cost basis of the sold portion is the pooled average, not the price you paid for any specific tranche. Two refinements apply: the same-day rule (any purchases and sales of the same asset on the same day are matched first), and the 30-day “bed and breakfast” rule (purchases of the same asset within 30 days after a sale are matched against that sale before the section 104 pool is touched). The 30-day rule prevents traders from selling a holding to crystallise a loss and immediately rebuying — the loss does not crystallise if you rebuy within 30 days.

A worked example. You buy 1 BTC for £30,000 in March 2025. You buy another 1 BTC for £50,000 in October 2025. Your section 104 pool now holds 2 BTC at an average cost of £40,000 each. In March 2026 you sell 1 BTC for £55,000. The cost basis is £40,000 (the pooled average), not the £30,000 you originally paid for the first one. Your chargeable gain is £15,000. After the £3,000 annual exemption, £12,000 is taxable at the relevant CGT rate. The pool retains 1 BTC at £40,000 for future calculations.

Records HMRC expects you to keep

For each trade you make, HMRC expects records covering the date of the transaction, the asset traded, the quantity, the price in GBP at the time of the trade, any fees or commissions, the counterparty (the platform or exchange), and any wallet addresses for crypto. Where the trade was denominated in a currency other than GBP, you also need the GBP exchange rate at the time of the trade. Records must be retained for at least five years and ten months after the end of the relevant tax year — so records for the 2025/26 tax year must be kept until 31 January 2032.

Britannia AI’s trade history export is designed to support this requirement. The export contains the date, asset, direction, quantity, price, fees, and GBP value for every trade executed through the platform, in a format compatible with crypto tax software (Koinly, Recap, CryptoTaxCalculator) and standard accounting workflows. The platform-reported data from January 2026 onwards will appear directly in HMRC’s records, and your export should reconcile to it.

When to use software vs an accountant

Below £20,000 of annual trading turnover, with straightforward CGT-only activity and clean records, the return is usually manageable yourself with a £100–£200 crypto tax tool such as Koinly or Recap. Between £20,000 and £100,000 of annual turnover, an accountant familiar with crypto and trading typically pays for themselves through correct treatment, claimed losses, and avoided HMRC enquiries — typical fees in 2026 sit in the £400 to £900 range for the additional schedules. Above £100,000 of turnover, with complex DeFi activity, multiple platforms, or any question of trading-vs-investment classification, a specialist crypto tax accountant or Chartered Tax Adviser is essential, with fees scaling to the complexity of the case.

Self Assessment for the 2025/26 tax year is due by 31 January 2027. Records and calculations for that year are best assembled now, while the platform exports are accessible and the trade reasoning is still recent. Leaving it until December rarely improves the outcome.