Frequently Asked Questions

A common misconception is that there isn’t a taxable disposal until you sell crypto for fiat but this is not correct. 

Taxable events include selling cryptoassets for fiat, trading/swapping cryptoassets, gifting cryptoassets (except to a spouse or civil partner), and spending cryptoassets. DeFi lending and staking transactions can also create taxable disposals on going in and out of the positions.

You will currently pay 10% or 20% capital gains with the rate being dependent on your total income level. If you are a higher rate tax payer you will pay 20%. There is also a capital gains tax free allowance available. The allowance for 2023/24 is £6,000 and for 2024/25 is £3,000.

You are entitled to deduct your losses as long as they have been correctly and timely claimed. Most people will usually be chargeable to capital gains tax providing they are not considered to be carrying out a trading business.

There are complex pooling and matching rules that are used to calculate the acquisition costs to use against each disposal.

Fees and costs incurred as part of acquiring, enhancing or selling assets are also deductible. 

There are occasions where certain actions do not give rise to a tax liability. These include acquiring cryptoassets with fiat, holding cryptoassets where they are not swapped for fiat or to another cryptoasset/any other asset, gifting to a spouse or civil partner, gifting to a charity (although advice should be taken if basic rate tax is not paid on the value transferred), and transferring crypto between your wallets.

If you receive a nudge letter from HMRC regarding your crypto transactions, here are the steps you should consider taking:

1. Do Not Ignore the Letter: While the nudge letter does not necessarily require an immediate response, it is important not to ignore it. The letter indicates that HMRC may be considering a closer look at your tax affairs in the future.
2. Review Your Tax Affairs: Check whether your crypto transactions have been correctly reported in your tax returns. This includes any sales, exchanges, or use of cryptoassets for purchases, as well as any rewards or returns from blockchain activities.
3. Seek Professional Advice: It is advisable to consult with a tax professional or accountant who can help assess your situation and ensure that your tax affairs are in order. They can also assist with any necessary disclosures to HMRC.
4. Consider the Implications of Signing a Declaration: Some nudge campaigns may include a 'certificate of tax position'. It is recommended not to sign such declarations without professional advice, as they could have significant consequences if errors are later found.
5. Proactively Address Any Discrepancies: If you believe there may be discrepancies in your tax reporting, it is beneficial to address these proactively. This can help mitigate potential penalties for underpaid taxes.

Taking these steps can help ensure that you are compliant with tax regulations and minimize any potential issues with HMRC.

To ensure your crypto transactions are accurately reported to HMRC, follow these steps:

1. Understand Tax Obligations: Cryptocurrency transactions in the UK are subject to either Capital Gains Tax or Income Tax, depending on the nature of the transactions. Capital gains arise from selling or exchanging cryptoassets, while income tax applies to earnings from activities like mining or receiving airdrops.
2. Maintain Detailed Records: Keep comprehensive records of all your crypto transactions, including dates, values at the time of transactions, and the type of crypto asset involved. This information is crucial for accurate tax reporting and is required by HMRC.
3. Use Appropriate Tax Forms: Report your crypto income using the Self Assessment Tax Return (SA100) and any capital gains or losses using the Capital Gains Summary (SA108). These forms can be submitted online via the Government Gateway service or by post.
4. Meet Deadlines: The deadline for online tax return submissions is January 31st, while paper returns must be submitted by October 31st. Ensure you meet these deadlines to avoid penalties.
5. Stay Informed About Changes: From the 2024-2025 tax year, HMRC will require a distinct section for reporting crypto assets on tax returns. Be prepared to adjust your reporting practices accordingly.
6. Seek Professional Advice: Consider consulting with a tax professional or accountant who is knowledgeable about crypto tax regulations to ensure compliance and optimise your tax situation.

By following these steps, you can accurately report your crypto transactions to HMRC and avoid potential penalties.

HM Revenue and Customs (HMRC) in the UK is likely to know if you sell cryptocurrency because crypto exchanges are required to report transactions to HMRC. 

This means that when you cash out or sell your cryptocurrency, the exchange may provide your transaction details to HMRC, including your identity and the amount involved. HMRC treats cryptocurrency as property for tax purposes, and you may need to pay Capital Gains Tax (CGT) when you sell or exchange cryptoassets. This tax is applicable when your gains exceed the tax-free allowance. 

Additionally, HMRC encourages individuals to report any income or gains from cryptoassets in their Self Assessment tax return to avoid penalties. It is important to keep accurate records of all transactions, including the type and number of tokens, transaction dates, and values in pound sterling, as HMRC may request this information during compliance checks.

Yes, cryptocurrency exchanges do inform HMRC of your activity. HMRC has established data-sharing agreements with major UK crypto exchanges to track cryptocurrency transactions. Exchanges like Coinbase, eToro, and CEX have been specifically named as having provided customer data to HMRC. 

This means that if you conduct transactions through these exchanges, HMRC is likely to be informed about your activities, especially if your transactions exceed certain thresholds. 

HMRC uses this information to ensure that individuals are meeting their tax obligations related to cryptoassets, which are treated as property for tax purposes. This means that gains from selling or exchanging cryptocurrencies are typically subject to Capital Gains Tax (CGT).

To claim crypto losses on taxes in the UK, you need to follow these steps:

1. Crystallize the Loss: First, you need to crystallize your loss, which means you must dispose of the cryptocurrency. This can be done by selling it or making a negligible value claim if the asset has become worthless.
2. Offset Against Gains: You can offset your capital losses against any capital gains you have made in the same tax year. If your losses exceed your gains, you can carry them forward to offset future gains.
3. Report the Losses: If you file a self-assessment tax return, report the losses on the SA108 capital gains pages. If you do not usually file a return, you can notify HMRC in writing to register your losses. This should include the amount of the loss and the tax year it occurred.
4. Time Limit: You have four years from the end of the tax year in which the loss occurred to claim it. For example, a loss in the 2023-24 tax year must be claimed by April 5, 2028.
5. Avoid Bed and Breakfasting Rules: Be aware of the "bed and breakfasting" rules, which affect the calculation of capital gains if the same cryptoasset is reacquired within 30 days of selling. To avoid this, consider investing in a different cryptocurrency or holding the proceeds in a stablecoin for 30 days before reinvesting.

By following these steps, you can effectively claim and utilise your crypto losses to reduce your tax liabilities in the UK.

Yes, HMRC can track crypto wallets and transactions. HMRC has data-sharing agreements with major UK crypto exchanges, allowing them to access transaction data and KYC information provided by users when signing up for exchanges or wallets. This enables HMRC to monitor cryptocurrency transactions and identify individuals who have not met their tax obligations.

While centralised exchanges, which require identity verification, report user data to HMRC, decentralised exchanges do not require KYC and are harder for HMRC to track. 

However, users are still responsible for reporting their transactions. HMRC's efforts to track crypto activity are part of a broader initiative to ensure compliance with tax regulations, including the potential implementation of the OECD’s Crypto-Asset Reporting Framework (CARF) by 2027.

In the UK, you do not need to report cryptocurrency holdings to HMRC if you have not sold or otherwise disposed of them. However, you are required to report any capital gains or income from cryptocurrency transactions. This means that if you have sold, exchanged, or otherwise disposed of your cryptocurrency, you need to report these transactions to HMRC, even if no profit was made.If you have received income from cryptocurrency activities, such as mining, staking, or airdrops, these must also be reported as income. It's important to keep accurate records of all your transactions, as HMRC may request this information during compliance checks.