HMRC has begun to issue ‘nudge letters’ to crypto asset owners who may have underpaid tax when selling their assets, urging them to amend or submit a tax return.
Crypto assets refer to any digital representation of value that can be digitally traded, transferred or used for payment. There are hundreds of different types, including Bitcoin and Ethereum.
In this rapidly evolving sector, asset holders are not always clear on what income or profit generates a tax liability.
This follows the introduction of The Crypto Asset Reporting Framework (CARF) earlier in 2024, requiring crypto asset firms to share customer data with HMRC when requested.
What do I need to report?
Profit on the sale (disposal) of crypto assets is typically considered to be liable to Capital Gains Tax (CGT) rather than Income Tax.
You will be taxed at a rate of:
- 10 per cent – on gains within the basic Income Tax band, if you pay the basic rate on your income.
- 20 per cent – on gains that exceed the basic Income Tax band, if you pay the basic rate on your income or if you are a Higher Rate taxpayer.
Gains should be reported on a Self-Assessment form via HMRC’s online service. HMRC will then tell you how much CGT you need to pay, how to pay it, and when to do so.
Mitigating tax liabilities
If your total capital gains are less than £3,000 (including any other capital gains you have made in the financial year), then you will not have any CGT to pay.
You may consider planning the disposal of crypto assets before, or after, the start of a new tax year to utilise each year’s allowance.
Contact us for further advice on crypto assets and Capital Gains Tax.
