Crypto investors urged to review tax obligations as HMRC sends ‘nudge letters’

The UK is one of the leading markets for crypto assets, yet many investors are unaware of their tax obligations due to uncertainty over tax rules and limited understanding of the nature of crypto assets.

Gary Ashford, Chair of CIOT’s Crypto assets Working Group, explained:

“Many investors may be unaware that profits from crypto assets are subject to income tax or capital gains tax (CGT) like any other asset, depending on how they’re held.

“If you receive a ‘nudge letter’ from HMRC, it's important to take it seriously. Even those who don’t receive a letter should review their crypto activity and file a tax return or use the capital gains real time transaction service if necessary.

“Sometimes tax can be due even where the investor does not think his or her investments have been profitable. Selling, lending or ‘staking’ crypto assets – or potentially even just transferring assets between crypto sites and portfolios – will usually trigger a disposal in the tax year in question. This is the case even if no cash is taken out or  after the end of the tax year the portfolio shows that there would be losses if all investments were cashed (because when computing the tax liability for a particular tax year, events occurring outside of that year are ignored).

“Additionally, from April 2024, the CGT reporting limit for those outside of self-assessment dropped to £3,000, down from £6,000, and a huge reduction from the £12,300 prior to April 2023. Many people might suddenly find themselves subject to CGT reporting and payments without realising it; anyone with taxable gains above this threshold, including from crypto assets, must report it to HMRC and pay any tax due – failure to do so can result in interest and penalties.”

While HMRC has made efforts² to inform the public and simplify the process, such as adding a dedicated section in 2024/25 tax returns for reporting crypto asset disposals and launching a disclosure service to report previous years’ disposals, the CIOT urges the government and HMRC to further raise awareness of the tax obligations related to crypto investments and the reduced CGT exemption.

A chargeable disposal occurs when individual:

• Sells crypto assets for fiat currency (like pounds).
• Exchanges one crypto asset for another (e.g., Bitcoin for Ether).
• Uses crypto assets to buy goods or services.
• Gives away crypto assets to someone other than spouse or civil partner (in this instance, the individual is deemed to receive the value of the asset even if they do not actually receive anything).

The CIOT has produced guidance for members assisting clients who may have additional tax liabilities to disclose to HMRC – see Assisting clients with making disclosures to HMRC - guidance for CIOT members. 

Gary Ashford concluded:

“By increasing awareness of tax responsibilities, HMRC can help more people comply, reducing the need for costly tax recovery efforts.”

Notes for editors

1. HMRC’s Wealthy Team are sending ‘One to Many’ letters to those taxpayers whom HMRC believe have disposed of crypto assets but not declared any resulting chargeable gains or income. A small number of letters were sent out in the first half of August with a larger batch following in September. The letter advises recipients on what action to take if necessary and points them towards the Crypto assets Disclosure Service. Anyone who believes they have nothing to pay are asked to contact HMRC to explain the reason why and provide any supporting information. There is a template of HMRC’s letter here.

2. HMRC Guidance - Tell HMRC about unpaid tax on crypto assets