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Aug 30, 2024

Crypto investors urged to review tax obligations

Crypto investors in the UK are being urged to review their tax obligations as HMRC begins issuing “nudge letters” to those it suspects may have underpaid tax on their crypto gains. The Chartered Institute of Taxation (CIOT) has emphasised the importance of accurate and up-to-date tax reporting for all crypto-asset owners.

The UK is a significant market for crypto assets, but many investors remain uncertain about their tax responsibilities. This confusion is partly due to the complex nature of crypto assets and the evolving tax rules that govern them.

Gary Ashford, chair of CIOT’s Crypto Assets Working Group, highlighted that many investors might not realise that profits from crypto assets are subject to income tax or capital gains tax (CGT), similar to other assets. He advised that anyone receiving a nudge letter from HMRC should take it seriously, and even those who do not receive a letter should review their crypto activity and ensure they meet their tax obligations.

Ashford also pointed out that tax liabilities could arise even if investments appear unprofitable. Actions such as selling, lending or “staking” crypto assets, or transferring them between portfolios, can trigger a taxable event. He warned that these disposals are taxable within the relevant tax year, regardless of whether the overall portfolio shows a loss after the year ends.

Furthermore, from April 2024, the CGT reporting threshold for those outside self assessment has been reduced to £3,000, down from £6,000 and significantly lower than the £12,300 limit prior to April 2023. As a result, more individuals may find themselves subject to CGT reporting and payments without realising it. Those with taxable gains exceeding this threshold, including from crypto assets, must report them to HMRC and pay any tax due, or face potential interest and penalties.

Although HMRC has introduced measures to assist taxpayers, such as a dedicated section for reporting crypto disposals in the 2024/25 tax returns and a disclosure service for previous years’ disposals, the CIOT is calling for further efforts to raise awareness of these obligations.

Ashford said:

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

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