HMRC has begun to issue ‘nudge letters’ to cryptoasset owners who may have underpaid tax when selling their assets, urging them to amend or submit a tax return.

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 CARF – The Cryptoasset Reporting Framework – earlier in 2024, requiring cryptoasset firms to share customer data with HMRC when requested.

What do I need to report?

Profit on the sale (disposal) of cryptoassets are typically considered to be capital gains rather than income – although income on investments in cryptoassets may be subject to Income Tax and National Insurance Contributions (NICs).

Any gain (profit) you make when disposing of cryptoassets will therefore be subject to Capital Gains Tax (CGT).

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 gains are less than £3,000 (including any other capital gains you have made in the financial year), then you do not have to report and pay CGT on cryptoassets.

You may consider planning the disposal of cryptoassets before or after the start of a new financial year to maximise each year’s allowance.

You should also make sure that you have applied any allowable business expenses to your taxable profit when reporting investment income for Income Tax and NICs.

Contact us for further advice on cryptoassets and Capital Gains Tax.