UK Crypto Investors Alert: Tax Obligations Persist Without HMRC Letter

UK Crypto Investors Alert: Tax Obligations Persist Without HMRC Letter

UK crypto investors might still face tax liabilities even if they haven’t received any letters from HM Revenue & Customs (HMRC). This warning comes as HMRC intensifies its efforts to trace undeclared income from digital assets.

Key Takeaways

HMRC has increased the number of “nudge letters” sent to investors, urging them to review their crypto filings.
Investors not receiving letters should still be cautious, as HMRC uses a range of data sources to identify noncompliance.
Taxable events include converting digital assets to fiat currency, token swaps, and income from staking or yield farming.
It is advisable to seek professional help if contacted by HMRC to navigate tax obligations efficiently.

In a recent report by the Financial Times, it was disclosed that HMRC sent out almost 65,000 “nudge letters” during the 2024–25 tax year—more than double the previous year's figure. These letters encourage investors to assess their tax filings and voluntarily declare any crypto-related profits before audits begin.

Tax experts emphasize that even if investors do not receive a letter, they should not assume they are exempt from taxes. Andrew Duca, founder of the crypto tax platform Awaken Tax, stated, “Failing to report cryptocurrency transactions to HMRC is against the law, regardless of whether you've received a letter.” He indicated that the increased number of notices should serve as both a warning and a wake-up call.

HMRC's Enhanced Oversight of Crypto Transactions

HMRC has the legal right to obtain transaction data from exchanges working in the UK or serving UK customers. With the OECD’s Crypto-Asset Reporting Framework (CARF) anticipated to commence in 2026, HMRC will gain automatic access to data from global trading platforms.

“It’s much wiser to report your activities now than wait for HMRC to come to you,” Duca advised.

Taxable events for crypto transactions include not just when digital assets are converted to pounds but also when they are swapped for different tokens or generate income through pathways like staking, airdrops, or yield farming. The only exemptions are purchases with fiat currencies or transfers between personal wallets.

To determine gains, HMRC employs a three-tier “spooling” technique. It assesses same-day trades first, then transactions within a 30-day window, and lastly considers an average cost for older purchases. This complexity may necessitate the use of specialized tax software tailored for crypto reporting, which Duca recommends for active traders.

Steps to Take If Contacted

For investors who receive a letter from HMRC, immediate consultation with a tax professional is wise. Experienced accountants can assist in preparing accurate transaction reports and negotiating with HMRC if any underreported payments are found. Ignoring the letter could result in penalties or deeper investigations.

“Using crypto tax software can streamline the process of generating precise reports for all your activities,” Duca stressed. “Moreover, be prepared to pay any owed taxes to avoid further complications.”

It’s essential to recognize that transactions involving decentralized exchanges (DEXs) and cold wallets still fall under HMRC's reporting obligations. “All DEX transactions, cold wallet activities, and hot wallet transfers must be reported,” he pointed out.

In the United States, meanwhile, there are discussions regarding revisions to crypto tax policies, including the potential for exempting smaller transactions from taxation and clarifying how staking rewards should be treated.

At a recent Senate Finance Committee hearing, lawmakers deliberated whether routine crypto transactions should incur capital gains tax and how to accurately classify income from staking services. Lawrence Zlatkin, vice president of tax at Coinbase, advocated for Congress to establish a de minimis exemption for crypto transactions valued under $300.

Example of a previous nudge letter sent in 2024. Source: kc-usercontent