HMRC treats NFTs as assets subject to Capital Gains Tax, but there are special rules for creators and collectors. Because each NFT is unique, it has its own cost basis — unlike fungible tokens, which are pooled for CGT purposes. Getting the basics right at purchase is what keeps the rest of your tax return simple.
Buying an NFT
| Action | Tax Event |
|---|---|
| Buy NFT with crypto | Disposal of the crypto used |
| Pay gas fees | Part of cost basis |
| Receive NFT | No tax (acquisition) |
When you buy an NFT with ETH (or any crypto), the crypto you spend is treated as a disposal. If that crypto has risen in value since you acquired it, you owe CGT on the gain at the point of the swap — even though you never touched cash. The gas fees you pay are added to your cost basis in the NFT.
Worked example: You buy ETH for £2,000, it rises to £2,500, and you use it to buy an NFT, paying £100 in gas. Two tax events occur: a £500 CGT gain on the ETH disposal, and the NFT’s cost basis becomes £2,600 (£2,500 purchase + £100 gas). Keep both records.
Selling an NFT
| Action | Tax Event |
|---|---|
| Sell NFT for crypto | Disposal of NFT (CGT) |
| Accept ETH | CGT on gain from cost basis |
| Accept a different NFT | Disposal of your NFT + acquisition of new one |
CGT applies on the gain between your cost basis and the sale value, which is the market value in pounds on the day of the sale. Selling an NFT for another NFT is two events in one: a disposal of your NFT (taxable now) and an acquisition of the new one (with its own cost basis at market value).
Worked example: You sell the NFT from the example above for 2 ETH worth £4,000. Your gain is £4,000 − £2,600 = £1,400, reported against the CGT annual exempt amount (£3,000 for 2025-26). If you made £2,000 on the ETH sale earlier, total gains of £3,400 exceed the allowance, leaving £400 taxable.
Creating (Minting) an NFT
| Activity | Tax Treatment |
|---|---|
| Hobby creator | CGT on sale |
| Professional creator | Income Tax (trading income) |
| Selling digital art as business | Income Tax |
The line between hobby and trade is decided by HMRC’s badges of trade: frequency of minting and selling, intention to make a profit, organisation and commercial structure. A one-off mint of a personal artwork sold for a profit is a CGT event. A creator who mints and sells collections regularly, runs a website, and markets their work is almost certainly trading — in which case sale proceeds are income, and expenses like software, gas and hardware become deductible.
Worked example: A hobbyist mints an artwork for £60 (gas and minting fees) and sells it for £600. The £540 gain is CGT. A professional who spends £200/month on software and gas and sells pieces for £5,000 in a year has £4,400 of taxable trading income after expenses — and the gain, not the £540 figure, is what HMRC cares about when deciding if a trade exists.
Royalties
| Income Type | Tax Treatment |
|---|---|
| Ongoing royalties from NFT sales | Miscellaneous income (or trading income) |
| Occasional royalties | Miscellaneous income |
| Regular royalties as a creator | Trading income |
Royalties from secondary sales are taxable income when received, at their market value in pounds. For a genuine creator with regular streams, they form part of trading income. For a collector who happens to hold an NFT with royalties attached, they are miscellaneous income. Either way, they are not capital — you cannot defer them as CGT.
NFT Airdrops
| Scenario | Tax Event |
|---|---|
| Free airdrop to holders | Income at market value |
| Airdrop for holding a specific NFT | Income at market value |
| Unsolicited airdrop (dust) | No tax (but disposed NFTs need tracking) |
Airdrops to NFT holders are generally income at the market value on receipt. Genuinely unsolicited dust dropped into your wallet with no action required may have no tax consequence on receipt — but if you ever sell it, the proceeds are a capital gain with a cost basis of nil. Treat any claim airdrop (where you actively claim) as income.
Record Keeping for NFTs
| Information | Why |
|---|---|
| Purchase date and cost | Cost basis for CGT |
| Gas fees paid | Part of cost basis |
| Sale date and proceeds | Disposal value |
| Royalties received | Income tracking |
| Creator costs (if trading) | Deductible expenses |
NFT tax reporting stands or falls on records, because each NFT is tracked separately. For every token, record the wallet address, the collection, the date, the value in pounds, the currency used, and every gas fee. If you are trading, add receipts for software, hardware and marketing. Good records mean a self-assessment that takes an hour instead of a weekend reconstructing your history from blockchain explorers.
Bottom Line
NFTs are subject to CGT on disposal. Creators who mint and sell regularly may be treated as trading (Income Tax). Royalties are income. Track every transaction including gas fees. The same CGT allowance (£3,000 for 2025-26) applies to NFT gains combined with other crypto gains.
Why NFT Tax Is More Complex Than Fungible Crypto
The fundamental difference is that fungible tokens like Bitcoin and Ethereum are pooled for CGT purposes — you calculate an average cost basis across all units of the same token. NFTs are each unique, so each one gets its own individual cost basis. This means more record-keeping per transaction, but it also means the gain or loss on each NFT is calculated separately.
For collectors who buy and sell a handful of NFTs a year, this is manageable with a spreadsheet. For active traders or creators dealing in high volumes, crypto tax software that supports NFTs is typically necessary. The software tracks each token’s cost basis (including gas fees), calculates gains on disposal, and generates reports formatted for self assessment.
One practical tip: when buying an NFT, record the transaction immediately. Note the date, the crypto used, its GBP value at the time of the swap, the gas fee, and the marketplace. Waiting until tax season to reconstruct these details from blockchain explorers is painful and error-prone. A five-minute habit at the point of each transaction saves hours later.