An NFT, or non-fungible token, is a unit of data on a blockchain that is unique: no other token can stand in for it, unlike one bitcoin for another. It records who controls that token, which often points to a digital image. In the UK, HMRC taxes a token by what it does, not by its label.
That is the whole answer to “what is an NFT in crypto”, and it does not change with the market. This is an evergreen explainer, not a news story: the definitions below hold whether NFTs are fashionable or forgotten. The second half of this piece covers the UK reader’s side: it reads what HMRC and HM Treasury have published and says where an NFT appears to fit, and where the pages read say nothing.
What is an NFT in crypto, in plain English?
Start with the word that does the work: fungible. HM Treasury’s Explanatory Memorandum to SI 2026/102, read by this desk on 1 November 2026, defines it in its glossary as “the state of one thing being interchangeable with another thing of a similar nature or kind.” A pound coin is fungible. So is a bitcoin: any one unit is as good as any other, which is what makes it usable as money.
A non-fungible token is the opposite. Each one carries its own identifier, and the blockchain records which address controls that particular identifier. Swap it for another NFT from the same collection and you have a different thing, the way swapping seat 14C for seat 22F changes your evening.
What the token usually points to is something else: an image, a piece of music, a ticket, an in-game item, a membership. The NFT is the record of control over the token, not necessarily ownership of the picture. The token alone does not say what rights, if any, come with the underlying work. That gap between “I own the token” and “I own the art” is where most of the confusion about NFTs lives.
How does an NFT work on Ethereum?
Most NFTs follow a published standard so that wallets and marketplaces can handle them without custom code. The best known is ERC-721, the Non-Fungible Token Standard, which this desk read on 1 November 2026. Its page marks it Final and dates its creation to 24 January 2018. It describes itself as “a standard interface for non-fungible tokens, also known as deeds.”
The standard is explicit about why it exists. The older token standard, EIP-20 (the one behind most fungible tokens on Ethereum), was insufficient for NFTs “because each asset is distinct (non-fungible) whereas each of a quantity of tokens is identical (fungible).” That one sentence is the clearest technical definition of the difference we found.
In practice, an ERC-721 contract keeps a list of token IDs and the address that owns each. A function called ownerOf returns the owner of a given token ID, and a Transfer event fires whenever ownership of any NFT changes. The standard’s own examples of what NFTs can represent range from physical property such as houses and unique artwork to virtual collectibles, and even “negative value” assets such as loans.
None of this needs a marketplace. Platforms such as OpenSea are shopfronts that read these contracts and let people list and buy tokens; the token itself lives on the chain, controlled by whoever holds the private key for the owning address. That is the same key-and-address arrangement a bitcoin wallet uses, and the same rule applies: whoever has the key controls the token.
Is an NFT the same as a cryptocurrency?
No, though both are cryptoassets. The difference is fungibility, and it decides what each is good for.
| Bitcoin (fungible) | An NFT (non-fungible) | |
|---|---|---|
| Is one unit interchangeable with another? | Yes, any unit for any unit | No, each token has its own ID |
| Typical Ethereum standard | Not on Ethereum; EIP-20 for fungible Ethereum tokens | ERC-721 |
| What it usually represents | Itself | Control of a token, often linked to an item |
| HMRC category in CRYPTO10100 | Named as an exchange token | Not named |
The last row is the one that matters for a UK holder, and it needs the next section.
How does HMRC treat an NFT?
HMRC sets out its framework in CRYPTO10100 of its Cryptoassets Manual, which this desk read on 1 November 2026; the page shows it was last updated on 28 November 2025. It lists the main types of cryptoasset as exchange tokens, utility tokens, security tokens and stablecoins. Bitcoin is its worked example of an exchange token.
The page read does not name NFTs, and its list has no separate NFT category. That absence is scoped to that page: this desk has not read every page of the manual, and it would be wrong to say HMRC has never mentioned NFTs anywhere. What the page does give is the rule that answers the question in principle:
“The tax treatment of all types of tokens is dependent on the nature and use of the token and not the definition of the token.”
So the label “NFT” settles nothing for tax. What settles it is what the particular token is and does. Here is how HMRC’s four types read against the kinds of thing NFTs are used for. The right-hand column is this desk’s reading of HMRC’s descriptions, not an HMRC ruling.
| HMRC type (CRYPTO10100) | HMRC’s description, summarised | An NFT that might look like it |
|---|---|---|
| Exchange token | Intended as a means of payment, also held as an investment | Unlikely: a unique token is a poor means of payment |
| Utility token | Gives access to goods or services on a platform | A ticket or membership NFT |
| Security token | Gives rights in a business, such as ownership or profit share | An NFT that promises a share of revenue |
| Stablecoin | Pegged to something of stable value, such as a currency or gold | Unlikely on its face |
Two more lines on the same page apply to every NFT whatever its type. HMRC “does not consider cryptoassets to be currency or money.” And, on its own, owning and using cryptoassets “is not illegal in the UK and does not imply tax evasion.”
What this desk did not read, and so does not state: any HMRC page setting out a specific tax outcome, rate or allowance for an NFT sale. If you have sold one at a gain, the practical point is that HMRC looks at the substance, as it does when you spend bitcoin on something. Check HMRC’s guidance for your own facts or ask a qualified adviser.
Are NFTs regulated by the FCA?
Here the honest answer has two parts: what is coming, and what nobody has said.
What is coming is a full FCA regime for cryptoasset firms. HM Treasury’s Explanatory Memorandum to SI 2026/102, read on 1 November 2026, says the instrument gives the FCA power to make rules “with full commencement beginning on Monday 25 October 2027”. It is not in force today. Until then, the rules UK readers meet are the existing ones, including the financial promotion requirements for cryptoassets that the memorandum says came into effect in October 2023, and the anti-money-laundering registration that an exchange’s FCA status turns on.
The new regime is built around a defined term. Paragraph 6.4 of the memorandum says “qualifying cryptoassets” are defined in a new article 88F of the Regulated Activities Order and are a subcategory of cryptoassets “which are fungible and transferable”, including qualifying stablecoin. Tokenised versions of existing specified investments are excluded and dealt with separately. Paragraph 6.24 says the instrument also amends the Financial Promotion Order so its “qualifying cryptoasset” definition aligns with the new one.
What nobody has said, on the pages read: the memorandum does not name NFTs. This desk searched it for “NFT” and “non-fungible” and found neither. So the following is an inference from the wording, not a statement by HM Treasury or the FCA: a token that is genuinely non-fungible does not appear to meet a definition that requires the asset to be fungible.
Three caveats keep that inference honest.
- Substance can beat the label. A large series of identical tokens, or one NFT split into many interchangeable fractions, may be fungible in substance even if it is marketed as an NFT.
- Other rules may still bite. An NFT that is really a security, such as one promising a profit share, could fall under a different part of financial services law. Anti-money-laundering rules and consumer law were not checked for this piece.
- The regime is not final in practice. The FCA’s rules and guidance under it are still to come, and they may say more than the order does.
What should a UK reader take from this?
An NFT is a record of control over a unique token, usually pointing at something you may or may not have rights in. For tax, HMRC asks what the token is and does, not what it is called. For regulation, the coming FCA regime is drafted around fungible assets, and the documents read do not say where a true NFT sits.
Questions readers ask
What is an NFT in simple terms?
An NFT is a token on a blockchain that has its own identity, so no other token is a stand-in for it. Think of a numbered concert ticket rather than a pound coin. The token records who controls it and usually points to something, such as an image or a membership. Owning the token is not automatically owning copyright in that thing.
Are NFTs a cryptocurrency?
Not in the usual sense. A cryptocurrency such as bitcoin is fungible: one unit swaps for any other. An NFT is non-fungible by design, so it works badly as a means of payment. Both are cryptoassets recorded on a blockchain, and HMRC’s manual says it does not consider cryptoassets to be currency or money, a statement it makes about cryptoassets generally.
How do NFTs make money?
An NFT does not earn anything by existing. Money changes hands when someone pays to mint one, buys one on a marketplace such as OpenSea, or sells one on, and the price is whatever a buyer will pay, which can be nothing. Any gain on a sale is a tax question in the UK, and the token can lose all its value.
Are NFTs taxed in the UK?
The CRYPTO10100 page of HMRC’s Cryptoassets Manual, as read here, does not give NFTs a box of their own. Its rule is that the tax treatment of any token depends on its nature and use, not on what it is called. So a UK holder works out the position from what the NFT actually is and does, and anyone with a real sale to report should check HMRC guidance or a qualified adviser.
Worth saying plainly: knowing what an NFT is tells you nothing about what one is worth. An NFT can fall to zero, may sit outside the protections a regulated product carries, and is controlled by whoever holds the key. Nothing here is advice; the risk is yours.