Case of the Month – Cryptocurrency – HMRC Disclosure
Scenario
Mr A, a UK resident higher-rate taxpayer, had actively traded cryptocurrencies over a period of approximately four years (2021/22 to 2024/25) using multiple online platforms, including Binance, Coinbase, and Kraken. His activity included frequent spot trades, occasional use of stablecoins, and participation in token swaps. Over the period, his total crypto disposals amounted to approximately £450,000.
The Issue
Mr A was unaware that most cryptocurrency disposals are subject to UK Capital Gains Tax (CGT) and that detailed transaction records are required to calculate gains under HMRC’s share pooling and matching rules. He had never reported any crypto gains on his Self Assessment tax returns.
As a result:
No CGT had been declared for four tax years
Transaction records were incomplete and not in a format suitable for tax reporting
Some exchange accounts had been closed, making data recovery more complex
Mr A became increasingly concerned after reading about HMRC’s heightened focus on cryptocurrency compliance and their data-sharing arrangements with major exchanges. He approached ETC Tax proactively to regularise his position before HMRC made contact.
How We Helped
ETC Tax undertook a comprehensive review and reconstruction of Mr A’s cryptocurrency transaction history, including:
Obtaining CSV data from multiple exchanges and wallets
Reconstructing missing trades using blockchain explorers where necessary
Converting all transactions into sterling values using HMRC-accepted exchange rates
Applying UK share pooling and matching rules to calculate chargeable gains for each tax year
Identifying allowable costs, including exchange fees and transaction costs
Following this review, we calculated total undeclared capital gains of approximately £185,000 over the four-year period. This enabled us to prepare revised CGT computations for each tax year and submit a comprehensive voluntary disclosure to HMRC. Our submission included a clear explanation of how the errors had arisen, and we successfully negotiated with HMRC to apply reduced penalties in light of Mr A’s prompt and unprompted disclosure and full cooperation.
Outcome
HMRC accepted the disclosure and agreed a lower-rate penalty. Mr A paid the outstanding tax, interest, and penalties in full, avoiding a formal enquiry or investigation. He is now fully compliant and:
Receives ongoing advice on the UK tax treatment of cryptocurrency transactions
Uses appropriate software to maintain accurate records of all crypto activity
Has an agreed annual review process with ETC Tax to ensure compliance is maintained
Client Benefit
By acting proactively and engaging ETC Tax, Mr A was able to regularise his tax position with minimal disruption, avoid potentially higher penalties, and gain certainty over his crypto tax affairs going forward.
Next Steps
If you have a similar case to the one above or would like to discuss your crypto situation further please get in touch enquiries@etctax.co.uk
A client approached us with a mix of traditional employment income and significant cryptocurrency activity. On top of trading, they were paid in crypto for providing freelance services in content creation. They had already used specialist crypto tax software but were concerned about its accuracy and wanted our expert review before submitting their self-assessment.
Issue
Two challenges stood out:
1. Tax treatment: We needed to review each type of crypto activity – trading, income from content creation, and other transactions – to determine the correct tax treatment.
2. Software accuracy: Specialist crypto tax software is a great tool but not always perfect. Errors can arise from:
o Missing or misclassified transactions
o Inaccurate token pricing
o Unmatched deposits and withdrawals
o Complex DeFi transactions the software can’t handle automatically
The client wanted our review to add value beyond what the software alone could provide.
How we solved it
As part of our review service, we:
• Reviewed all crypto data in the software;
• Analysed each type of crypto activity to confirm the correct tax position;
• Checked largest gains, losses and problem areas;
• Reconciled missing costs, unmatched deposits, and withdrawals
• Reviewed DeFi activity manually where the software struggled;
The outcome
Following our review service, we were able to provide the client with a more accurate tax report to ensure they didn’t overstate or understate their liabilities. We then prepared their self-assessment tax return to report these liabilities to HMRC.
Our review gave the client assurance they couldn’t get from software alone. By reviewing each type of activity and correcting key errors, we ensured their crypto tax position was accurate and HMRC-compliant, giving them peace of mind when filing their return.
Next steps
If this case sounds familiar please do get in touch.
Preparing for the Unpredictable with Crypto and Inheritance Tax
They say only two things in life are certain: death and taxes. But when it comes to cryptoassets, certainty is in short supply, particularly over the long term. The value of your digital holdings in 30 years could triple, or be close to nothing (who knows!).
One more certain thing: if you’re a UK-domiciled individual, your cryptoassets could be subject to Inheritance Tax (IHT) on your death.
So, if you could take steps today to protect that value (whatever it may be in future) wouldn’t you want to?
The Basics
Inheritance Tax is a tax on the estate (property, money, and possessions) of someone who has died. In the UK, the standard rate is 40%, applied to the value of the estate above the nil-rate band, which is currently £325,000.
Cryptoassets, for legal and tax purposes, are treated as personal property. This means they form part of your estate and are therefore assessable for IHT purposes. They can also be held within a trust.
Practical Challenges
Valuation
Given the high volatility of cryptoassets, it is crucial to obtain an accurate valuation of crypto holdings as at the date of death. This is easier said than done and may require retrospective valuation evidence or professional assistance to ensure accuracy.
Access
While IHT applies based on the value of the estate, access to that crypto presents a unique problem.
Unlike traditional financial assets (e.g., bank accounts, investments, or property), cryptocurrencies are stored in digital wallets, which can only be accessed using private keys, passwords, seed phrases, or login credentials.
Without these details, your Executors will be unable to access the assets. This makes proper planning and secure transmission of this information essential when incorporating any gift of cryptoassets in your will.
Lost Crypto
We have seen first-hand a situation where a client’s relative passed away holding a substantial crypto portfolio. Unfortunately, with no private key or access details left behind, the crypto could not be accessed and was ‘lost’ forever.
In that case, despite the assets being inaccessible, without applying reliefs they were still technically liable for IHT on their value at the date of death. So, does this mean you have a hefty IHT bill without the funds to pay it? That doesn’t seem fair to us.
There is a provision which considers changes in the value of the estate’s assets caused by death (e.g., if access is lost due to death) that can be taken into account. Therefore, if crypto becomes irrecoverable because of death, there may be an argument that the fall in value should be treated as if it occurred before death, reducing the tax burden. However, this is a nuanced and evolving area, HMRC guidance does not give a view on this and it is yet to be tested in the courts.
Planning Ahead
With the above challenges in mind, it’s important to plan ahead. Despite the complications, the core principles of estate planning still apply.
However, a balance needs to be struck between planning to reduce IHT, providing clear access instructions in the event of your death, and maintaining the security of those assets during your lifetime (and post-death).
Examples of IHT Planning
Gifting: Gifting cryptocurrency during your lifetime can reduce your estate’s value, and if you survive seven years, the gift may be fully exempt from IHT.
Spousal Transfers: Transferring crypto to a spouse or civil partner is IHT-exempt and helps defer tax until the surviving partner’s death.
Life Insurance Policies: A life insurance policy written in trust can be used to cover the IHT liability arising from crypto holdings.
Use of Trusts: Placing cryptoassets into discretionary trusts can be a useful tool for passing on the assets securely and removing them from your estate for IHT purposes.
Use of Family Investment Companies (FICs): Holding crypto in an FIC may allow control while transferring value to the next generation in a tax efficient way.
Other Practical Steps
Keeping a clear inventory – What assets do you own? On which platforms or wallets are they held? Are they staked or part of a liquidity pool?
Secure but separate storage of sensitive data – Avoid listing private keys in your will. Instead, reference a securely stored, encrypted inventory, and review this data regularly.
Security planning – Use multi-signature wallets, trusted family members as co-signers, or “Dead man’s switch” mechanisms.
Use a solicitor – Ensure your will makes express reference to your cryptoassets and clearly sets out how they are to be passed on, and to whom.
A Word on Mindset
Cryptoassets should be treated like any other estate asset. But due to the nature of the technology, and the mindset of many crypto enthusiasts, planning can be more complicated than for traditional holdings.
Many holders pride themselves on autonomy and privacy. But without practical estate planning, that same autonomy could result in family members being left with no access to the cryptoassets.
Conclusion
Crypto is volatile, complex, and often misunderstood. But that doesn’t mean it can be ignored for inheritance planning purposes. On the contrary, it makes planning all the more important, not only to preserve value but also to ensure those precious assets land safely in the hands of your loved ones.
If you or your clients hold cryptoassets, there is no time like the present to take stock, plan sensibly, and put the necessary safeguards in place. The earlier you plan, the better. That way, the value – whatever it may be in future – has the best chance of making it into the hands of those you care about, and not just HMRC.
Next Steps
If you would like tailored advice on cryptoassets and inheritance tax planning, please get in touch with the team at ETC Tax and we’d be happy to help.
Head over to our crypto section on our website to see how we can support you when dealing with our crypto.
For those of you that still think crypto is outside HMRC’s reach, think again!
Whether you’re a casual trader, a long-term holder of crypto, or someone dabbling in NFTs, HMRC will increasingly be able to track you down.
Most people now realise that cryptoassets are taxable, but it’s not just when you sell tokens for cash. Swapping one cryptocurrency for another, say, trading Bitcoin for Ethereum, counts as a disposal, and if there’s a profit, it’s likely to be taxable.
Using crypto to buy a pizza, a new laptop, or even giving it away in some circumstances? That, too, could be a taxable event.
Tax returns are getting a crypto update
In fact soon there’ll be a specific section just for crypto activity on your self-assessment tax return.
You’ll need to disclose the type of tokens you hold, when you bought or received them, how many you’ve got, and their value in pounds at the time of the transaction.
That means no more guesswork. You’ll need proper records.
HMRC advises keeping digital wallet addresses, dates of transactions, and bank statements. And if HMRC decides to investigate? Well in certain circumstances, they can look back as far as 20 years.
Right now, crypto exchanges don’t automatically report your activity to HMRC. But that’s also changing.
From 2026, new global transparency rules are expected to come into play. These rules could force platforms to start handing over customer data to the tax authorities, including HMRC, similar to the way online marketplaces like eBay and Etsy now report their seller’s income.
So, if you’ve been quietly trading or earning in crypto, the window for staying under the radar is closing fast.
Mining, earning, and spending crypto? It All Counts
What about crypto mining? Well, that counts as income too and should be reported as such on your tax return.
And if you’re getting paid in cryptocurrency, you still need to account for income tax and National Insurance. In most cases, this should be taken care of through PAYE, but if it isn’t, the responsibility lies with you.
What’s more, even where income tax is accounted for, if you later sell that crypto at a profit, you could also be hit with a Capital Gains Tax bill.
HMRC is already taking action
Last year, HMRC sent letters to individuals they suspected of failing to report crypto-related income and gains with a 60-day deadline to reply.
If you’ve missed declaring income in previous tax years, there is a way to sort this out through HMRC’s disclosure facility. But be prepared, this could result in penalties and interest on unpaid tax, so if you do get a letter, it’s always best to get professional advice before you reply
The crypto world moves fast, but HMRC is catching up. Whether you’re a miner, trader, investor, or someone paid in crypto, you need to be compliant.
Next Steps
At ETC Tax, we make crypto tax compliance clear, simple, and stress-free. We understand how the rules apply, how to get your records in order, and how to protect yourself from unnecessary penalties.
If you think you might have something to declare or just want peace of mind, get in touch with us today.
If you have received an HMRC nudge letter regarding your cryptocurrency transactions, it’s crucial to act promptly.
HMRC is intensifying efforts to ensure crypto investors pay the correct amount of tax, and these letters are part of a broader campaign targeting individuals suspected of underreporting or failing to declare their crypto gains or income.
It is important to act quickly, as ignoring this letter can result in hefty penalties, interest charges, or the dreaded brown envelope containing a lengthy tax investigation.
However, not to worry – as engaging with a qualified tax professional can ensure your position is properly considered and accurate, and help to reduce the risk of those unintended consequences.
Why Did You Receive a Crypto Nudge Letter?
HMRC has been gathering data from cryptocurrency exchanges and other digital asset platforms to identify individuals who may not have accurately reported their crypto activities.
The nudge letter serves as a warning that any undisclosed gains could lead to additional tax liabilities, interest, and penalties.
Over 8,000 nudge letters have already been sent out to those suspected.
Can HMRC Track Crypto Transactions?
Yes. HMRC has data-sharing agreements and access to crypto exchange records, allowing them to track transactions.
The UK government has also joined the international Crypto Asset Reporting Framework (CARF), enabling global data-sharing for tax purposes.
Action List: What to Do If You Receive a HMRC Crypto Nudge Letter
Ensure Your Transactions Are Accurate
Assess all your cryptocurrency transactions over the past few tax years.
Identify taxable events such as selling, exchanging, or using crypto for purchases.
Understand whether your gains or income were correctly reported.
Use Crypto Tax Software
Manual calculations can be complex, especially if you have multiple transactions.
There are plenty of known Crypto Tax Software tools that can help track transactions, calculate tax liabilities, and generate accurate tax reports.
We recommend even if you are using a tax software tool, to ensure that the data is looked over by a tax expert specialising in crypto taxation, which is where ETC Tax can help.
While crypto tax software is incredibly helpful, there is always room for error in data inputting and labelling your transactions correctly
As tax professionals, we can help you correct those errors and ensure any reports are as accurate as possible.
Communicate with HMRC
Do not ignore the letter, its important that you work proactively with HMRC.
A voluntary disclosure can help in this instance, in reducing any penalties and help avoid further consequences.
HMRC’s disclosure facility offers more favourable settlement terms for those who come forward voluntarily.
Next Steps
With HMRC’s increasing scrutiny and access to crypto transaction data, it’s more important than ever to review your tax position and ensure compliance. If you receive a nudge letter, take immediate action to review your transactions, seek professional advice, and rectify any discrepancies to avoid penalties. Please get in touch with us if you receive one of these letters.
Cryptocurrency has rapidly grown in popularity, and as more people invest in Bitcoin, Ethereum, and other digital currencies, it’s important to understand the tax implications. In the UK, the HMRC views cryptocurrency as property, not currency, which means gains and losses from crypto transactions may be subject to Capital Gains Tax (CGT) or Income Tax, depending on the nature of the transaction. If you hold crypto and need to file a self-assessment tax return, there are several key things you need to be aware of.
1. Understanding Taxable Events
A taxable event in the context of cryptocurrency refers to a transaction that triggers a tax liability. In the UK, the following are considered taxable events:
Selling crypto for fiat currency (e.g., GBP)
Exchanging one cryptocurrency for another
Using cryptocurrency to purchase goods or services
Receiving cryptocurrency as a form of payment or reward (mining, staking, airdrops, etc.)
It’s important to keep records of these transactions as they will determine your gains or losses.
2. Capital Gains Tax (CGT)
Most individual cryptocurrency investors will need to pay Capital Gains Tax on any profits made from selling or exchanging their digital assets. The CGT rate is dependent on your income level, with basic-rate taxpayers benefitting from a 10% rate of tax on any gains that fall within their remaining unused income tax basic rate band. Higher or additional-rate taxpayers pay a flat 20% CGT on their gains. The annual exempt amount for the current tax year 2024/25 tax year is £3,000, although the threshold was higher at £6,000 in the prior tax year (2023/24). If you have gains that are lower than the annual exemption, they are not subject to CGT.
To calculate your CGT, you must subtract the cost of acquiring the cryptocurrency (including any transaction fees) from the overall sales proceeds. If you’ve made a profit, CGT may be due on the amount exceeding your annual exemption. If you’ve made a loss, it is important to carry forward that loss to use against any future gainscl
3. Income Tax
In some cases, Income Tax rather than CGT may apply, especially if you’re actively trading, mining, staking, or receiving crypto through airdrops. Mining rewards, for example, are considered income, and the market value of the crypto at the time it was received must be declared. Similarly, if you’re seen as a frequent trader, your activities may be treated as a business, and any profits would be taxed as income.
Income Tax rates vary based on your earnings: 20% for basic-rate taxpayers, 40% for higher-rate taxpayers, and 45% for additional-rate taxpayers.
4. Keeping Accurate Records
HMRC requires you to maintain comprehensive records of all your crypto transactions, even if you don’t owe tax on them. This includes:
Dates of transactions
The value of the cryptocurrency in GBP at the time of each transaction
The type of transaction (buying, selling, exchanging)
Fees or costs associated with the transactions
The wallet addresses involved
These records will allow you to accurately calculate your tax liability and support your figures if HMRC asks for evidence. Cryptocurrency exchanges may not provide comprehensive reporting, so it’s crucial to maintain your own records.
5. Deductible Expenses
Certain expenses can be deducted from your taxable profits, reducing your CGT or Income Tax bill. Deductible expenses include transaction fees, withdrawal fees, and the cost of professional advice or software used to manage your crypto portfolio. However, personal costs, such as electricity used for mining at home, may not be deductible unless you are running a mining business.
6. Crypto Losses
If you’ve made a loss on your crypto investments, you can use these losses to reduce your tax bill by offsetting them against any gains. To do this, you must declare the losses on your self-assessment tax return. Unused losses can be carried forward to future tax years, which could be useful if you anticipate gains in the coming years.
7. Staking, Airdrops, and Forks
Staking Rewards: If you earn cryptocurrency through staking, this is usually considered income and subject to Income Tax. The value of the cryptocurrency when you receive it should be reported as income.
Airdrops: Receiving cryptocurrency through airdrops may also be subject to Income Tax. However, if you receive an airdrop without performing any action in return, it may not be taxable until you dispose of the crypto.
Hard Forks: If a cryptocurrency undergoes a hard fork, resulting in the issuance of new coins, these new coins may be subject to Capital Gains Tax when disposed of, similar to other crypto assets.
8. Deadlines and Penalties
The UK tax year runs from 6th April to 5th April of the following year. If you have crypto gains or income to declare, you must file your self-assessment tax return online by 31st January following the tax year. If you miss this deadline or underreport your crypto taxes, you could face penalties and interest charges.
9. Getting Professional Help
Crypto taxation can be complex, especially with the added volatility and unique aspects of digital assets. It’s easy to overlook taxable events or miscalculate gains. If you’re unsure about how to report your crypto transactions or calculate your tax liability, it may be worthwhile seeking professional help from a tax advisor familiar with crypto.
Final Thoughts
As the HMRC continues to refine its stance on cryptocurrency, staying compliant with tax regulations is essential to avoid hefty fines and penalties. Whether you’re an occasional crypto trader or a seasoned investor, understanding your tax obligations and keeping thorough records will ensure you file accurate self-assessment returns. Make sure to review your transactions carefully and seek advice when needed to ensure you stay on the right side of the law.
Next Steps
By staying informed and organised, you can minimise your tax liability while complying with HMRC’s requirements. ETC Tax is here to help you with your crypto, ensuring you’re maximising tax efficiency.
