HMRC sending ‘nudge letters’ to crypto asset investors

Crypto asset investors who have received ‘nudge’ letters from HMRC are being urged to take their tax obligations seriously.

This advice comes from the Chartered Institute of Taxation (CIOT), which is reminding all crypto asset owners to ensure their tax reporting is accurate and up to date, or risk facing penalties.

You will need to complete a self-assessment tax return if you:

• sell crypto assets for fiat currency (such as pounds)
• exchange one crypto asset for another
• use crypto assets to buy goods or services
• give away crypto assets to someone other than a spouse or civil partner

Gary Ashford, Chair of CIOT’s Crypto Assets Working Group, said, “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.”

Gary added, “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.”

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