Last updated on 18 August 2026
Token grants in crypto startups can trigger an immediate UK tax charge, sometimes at grant, before any vesting condition is met and before you can sell or use the tokens. This is a specific rule under ITEPA 2003, not a grey area.
Many founders and employees assume the opposite: that if tokens are locked or subject to a vesting schedule, tax won’t apply until they can actually access them. That assumption is usually wrong in the UK, and it can leave employees with a tax bill on value they don’t yet hold, and founders with reporting and withholding obligations they didn’t see coming.
Why ITEPA 2003 is Important for Crypto Startups?
In the UK, the rules on employment-related securities (ERS) are found in the Income Tax (Earnings and Pensions) Act 2003 (ITEPA). These rules cover shares, options, and anything that looks like a right to acquire value because of employment. HMRC sees tokens given to employees or founders as falling under ERS rules.
That means if you receive tokens as part of your role in a company or project, tax may apply immediately, even if the tokens are locked or subject to vesting. The key test is whether the award is “by reason of employment.”
Token Grants and Immediate Tax
Here’s the problem: many startups issue tokens early, often before they have much value. Founders and early employees are granted large allocations. They assume tax will be due only when tokens vest or unlock.
But under ITEPA, HMRC can treat the right to tokens itself as taxable at the time of grant. Even if the tokens are locked for years, tax may arise immediately if they are considered employment-related securities.
For example:
- A UK founder receives 1 million project tokens in 2026, locked for 4 years with a 1-year cliff.
- At grant, each token is worth £0.05.
- The taxable value is £50,000 (1m x £0.05).
- Income tax is due now, even though the founder cannot sell tokens until later.
This creates a serious cash flow issue. The founder may owe tax on something they cannot liquidate.
Vesting Cliffs and Unlocks Don’t Always Delay Tax
In traditional equity, vesting schedules help spread out tax because you only acquire shares when they vest. With tokens, things are not so straightforward.
If the token allocation is treated as granted in full at the start, then tax is triggered immediately. The fact that tokens are subject to a 1-year cliff or vesting conditions does not necessarily prevent tax.
HMRC may argue that the founder has already acquired a “conditional right” to tokens. Unless the conditions are strong enough to be considered a “real risk of forfeiture,” tax still applies at grant.
This is why cliffs and unlocks do not guarantee deferral.
SAFTs and Their Risks
A SAFT (Simple Agreement for Future Tokens) is common in crypto fundraising. Investors pay upfront and receive tokens when the network launches.
For employees and founders, SAFTs are tricky. If they enter into a SAFT through their role, HMRC may treat the right as employment-related securities. That means tax at the time the SAFT is granted, or when tokens are delivered.
If the network takes years to launch, or if tokens are illiquid, employees may face tax on something they cannot sell.
Startup Founders’ Crypto Tax Traps
There are several traps UK founders and teams should be aware of:
1. Tax on Locked Tokens
Receiving tokens that are locked does not always protect you from tax. HMRC may tax based on market value at grant.
2. SAFT Allocations
SAFTs given to founders as part of their role may be taxable employment-related securities.
3. Valuation Challenges
Startups often undervalue their tokens. HMRC may disagree, especially if there is a token sale or external fundraising.
4. Double Tax
Even if you pay income tax at grant, you may still face Capital Gains Tax (CGT) later when you sell tokens at a higher price.
Example: Founder Trap
Imagine a startup launches a token. A UK founder receives 500,000 tokens under a vesting schedule.
- At grant, tokens are worth £0.10 = £50,000 taxable.
- Founder owes income tax and NICs on £50,000.
- Two years later, tokens are unlocked and worth £1.00. If the founder sells, they face CGT on £500,000 – £50,000 = £450,000 gain.
So the founder pays tax twice: once at grant, and again on disposal.
A specialist crypto accountant in the UK can review structures, valuations, and agreements to avoid costly mistakes. Careful planning can also open doors to tax-efficient investments for UK residents, helping founders manage both risk and opportunity.
How Crypto Accountants in the UK Can Help
Crypto tax is complex. The UK rules were designed for shares, not tokens. Applying ITEPA to tokens creates confusion and unexpected liabilities.
Working with a specialist crypto tax accountant is critical. Crypto Accountant UK can:
- Review token allocations and SAFT agreements.
- Assess whether vesting conditions count as “real risk of forfeiture.”
- Help structure grants to minimise immediate tax.
- Provide defensible token valuations.
- Plan for both income tax and CGT exposure.
Without this support, founders risk paying large tax bills on illiquid assets. Ignoring expert advice can expose teams to unnecessary penalties and missed planning opportunities, as seen in the real risks of skipping a crypto tax accountant.
Final Thoughts
Crypto founders often underestimate UK tax rules. Tokens are not treated like cash bonuses or equity options. Under ITEPA 2003, HMRC can tax token rights immediately, creating unexpected liabilities.
The safest path is to get professional guidance before issuing or receiving tokens. A specialist crypto accountant in the UK can review structures, valuations, and agreements to avoid costly mistakes.
If you are a founder or employee in a crypto startup, don’t risk unexpected tax bills. Speak to a professional today. Contact Crypto Accountants to get expert advice on token grants, SAFTs, and UK tax compliance.
FAQs
Are token grants always taxable in the UK?
Not always, but if they are linked to employment or founder roles, HMRC usually treats them as taxable under ITEPA.
Does vesting delay tax for startup tokens?
Not necessarily. Unless there is a genuine risk of forfeiture, vesting does not prevent immediate tax at grant.
What happens if I can’t sell tokens to pay tax?
You may still owe tax even if tokens are locked. Planning with a crypto tax accountant is essential to avoid cash flow problems.
Do SAFTs create tax problems for employees?
Yes, SAFTs linked to employment can be treated as employment-related securities and taxed either at grant or on delivery.
