Last updated on 7 August 2026
Crypto Options and Perpetual Swaps: CGT or Trading Income?
Most crypto options and perpetual swaps are taxed under Capital Gains Tax (CGT), but in some cases HMRC may treat them as trading income if your activity meets the “badges of trade.”
This is an important point because crypto derivatives are not the same as simply buying Bitcoin. They involve contracts, expiry dates, funding payments, and liquidations. The way HMRC classifies them, whether under CGT or Income Tax, can make a big difference to your final tax bill.
HMRC’s Approach to Crypto Derivatives
HMRC’s crypto guidance states that most people will be taxed under CGT when they buy or sell tokens, coins, or derivatives such as options and perpetual swaps.
- Capital Gains Tax (CGT): Applied when you hold crypto or derivatives as investments.
- Income Tax: Applied when your trading activity is frequent, systematic, and business-like.
The main question is whether a closing trade, liquidation, or option expiry is a taxable disposal. HMRC has confirmed that these events do count as disposals for CGT.
Crypto Options: Tax Treatment
A crypto option is a contract giving the buyer the right, but not the obligation, to buy or sell crypto at a specific price before or on a certain date.
- If the option expires worthless, the premium you paid is treated as a capital loss.
- If you sell the option before expiry, you calculate your gain or loss against your purchase cost.
- If you exercise the option, the strike price and premium affect the base cost of the underlying crypto.
You buy a Bitcoin call option for £500 with a strike of £20,000. Bitcoin rises to £23,000, and you exercise. Your effective cost is £20,500 (strike + premium). When you later sell at £23,000, your gain is £2,500.
If the option expires worthless, your £500 premium becomes a capital loss you can offset.
So in most cases, options fall under crypto options CGT rules. But if you are writing options (selling them regularly for premiums) as a business strategy, HMRC may see this as trading income.
This issue is similar to how HMRC treats employment-related securities and vesting schedules in crypto startups, where the line between investment and trading income also needs careful analysis.
Perpetual Swaps: A Grey Area
A perpetual swap is a crypto derivative with no expiry. It mirrors the price of the underlying coin and uses funding payments between long and short traders to stay in line.
For UK tax purposes:
- Closing a swap counts as a disposal for CGT.
- Liquidation also counts as a disposal.
- Funding payments usually adjust your overall gain or loss.
You open a long Ethereum perpetual swap with £1,000 margin. The market rises, and you close at £1,500. That £500 profit is a capital gain under CGT.
However, if you are trading dozens of perpetual swaps daily, HMRC could argue that this is more like running a trading business. In that case, the profits may be taxed as income, not capital.
This is why perpetual swap tax UK rules are sometimes seen as a grey area.
The Badges of Trade
The “badges of trade” are legal tests used to decide whether an activity is a trade or an investment. HMRC applies these to crypto as well.
Key badges include:
- Frequency: Daily trades look more like trading income than investment.
- Organisation: Use of bots, systems, or business processes indicates trade.
- Profit motive: Quick turnover for profit looks like trade; long-term holding looks like investment.
- Nature of asset: Trading only in short-term contracts points towards trade.
If your activity ticks many of these boxes, HMRC may classify it as trading income rather than CGT. This means Income Tax and National Insurance could apply.
Why Classification Matters
The difference between CGT and trading income is significant:
- Capital Gains Tax (CGT): 10% or 20%, depending on your income level. Plus, there’s an annual allowance (£3,000 in 2025/26).
- Income Tax: Up to 45% plus Class 4 NICs if treated as self-employment.
For active traders, this could mean paying nearly double in tax compared to CGT. This is why many UK investors now also explore ways to balance derivative trading with other tax-efficient investments.
Examples of Tax Treatment
Casual trader:
Amir buys Bitcoin perpetual swaps twice a month, making £4,000 profit in a year. HMRC will almost certainly treat this as CGT.
Day trader:
Sophie trades perpetual swaps daily using bots. She earns £60,000 in one year. HMRC may treat this as trading income under the badges of trade.
Option writer:
Daniel sells Ethereum options regularly for premiums without holding ETH. HMRC may treat this as trading income because of its business-like nature.
Staying Compliant with HMRC
To reduce risk:
- Keep clear records of every trade, including expiry and liquidation details.
- Track funding payments separately for perpetual swaps.
- Be aware that frequent and organised trading can trigger trading income classification.
- Get professional advice if unsure about your situation.
Conclusion
Most crypto options and perpetual swaps are taxed under Capital Gains Tax (CGT). But if you are trading actively, HMRC may classify your profits as trading income under the badges of trade.
The difference can be huge: sometimes doubling your tax liability. That’s why accurate records and expert guidance are essential.
For support on crypto tax UK, options expiry, perpetual swaps, and HMRC compliance, visit Crypto Accountants.
FAQs
Are crypto options always taxed under CGT?
In most cases, yes. But if you are writing (selling) options frequently and in a business-like way, HMRC may classify the profits as trading income instead of capital gains.
How are funding payments on perpetual swaps taxed?
Funding payments normally adjust your overall gain or loss for CGT purposes. However, if HMRC treats your activity as trading, these payments may instead be considered income or expenses.
Can I offset losses from expired options against other gains?
Yes. When an option expires worthless, the premium you paid becomes a capital loss. You can use this to offset other gains in the same tax year or carry it forward to future years.
What if I’m unsure whether my activity is CGT or trading income?
The best step is to check your activity against the badges of trade. If your trading looks frequent, organised, and business-like, HMRC may treat it as income. Seeking professional advice is strongly recommended.
