Do I owe UK tax on my crypto assets?

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I received a letter from HMRC about my crypto assets. Does this mean I made a mistake on my last tax return and owe them tax?

Henry Lowe, partner at Mercer & Hole, says HMRC is closely scrutinizing the reporting of all crypto transactions, including for cryptocurrencies and non-fungible tokens, and this summer sent out so-called “nudge” letters to remind individuals, with more to be launched this month. This doesn’t mean you’ve made a mistake, but it’s a reminder to double-check your returns.

From April, all crypto sales must be identified separately on UK tax returns in a section to record this information. HMRC will cross-check annual tax reporting with data it receives directly from crypto exchanges and other trading platforms.

Over the past few years, HMRC has obtained the contact details of those trading crypto assets on major crypto exchanges (such as Coinbase, Binance or Kraken). Under UK regulations, in order to have UK customers, these exchanges are expected to disclose user data to HMRC.

Regardless of how your crypto has performed, it is essential to ensure that you report your crypto correctly in order to get the correct tax or take advantage of the valuable tax relief for any losses. If you’ve made a reporting mistake, you can use HMRC’s digital disclosure service to update your tax affairs worldwide.

If there are taxes to pay, the penalties will be much higher (up to 200%) if HMRC contact you first, so it’s always best to bring any history reports to their attention.

Where you have always remained invested in crypto and have not exchanged crypto for “fiat” currency or withdrawn funds, UK tax charges and tax reporting may still occur. Transferring one crypto-asset or currency to another is a disposal under UK tax rules. Therefore, a careful check of your crypto transactions is important to ensure that your tax reporting is up to date.

If you are not domiciled in the UK, HMRC’s view is that the crypto is located where the holder is resident. This means that the remittance tax base will generally not protect crypto earnings or income. If you’ve relied on your domicile status to protect your crypto earnings, you’ll want to check if you’ve missed any tax reporting.

Finally, if you are unsure about any reporting matters relating to your crypto assets, you should take professional tax advice.

The opinions in this column are intended for general information purposes only and should not be used as a substitute for professional advice. The Financial Times Ltd and the authors are not responsible for any direct or indirect results arising from any reliance placed on the answers, including any loss, and exclude liability to the fullest extent.

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