The rise in prominence of cryptocurrency has seen HMRC issuing speculative letters to taxpayers, warning them of potential Capital Gains Tax (CGT) implications.

The letters from the treasury focus on the disposal of cryptocurrency, with examples given of when a disposal can take place. These letters are an example of an HMRC campaign known as ‘one to many’ (OTM) letters, where standard messages are delivered to multiple taxpayers at once. We recently discussed HMRC’s increasing scope of OTM letter topics here.

What does the cryptocurrency letter say?

The letter will state three instances when a taxable gain may arise:

  1. Trading cryptocurrency
  2. Swapping one cryptocurrency for another
  3. Spending cryptocurrency

These are all examples of cryptocurrency disposals, but HMRC is particularly interested in raising awareness of the second and third instances, which sees the cryptocurrency being sold and the usual capital gains rules applying.

How does HMRC know who to contact?

HMRC has received information from cryptocurrency exchanges to determine which individuals to contact. It is important to remember these letters are not an effort to clamp down on cryptocurrency, but to educate people about potential CGT implications when disposing of cryptocurrency.

Paying CGT on cryptocurrency

Receiving a letter does not necessarily mean you owe CGT, but you should consider whether you need to report any gains. As a reminder, the annual exempt amount for capital gains is £12,300. If you have realised net gains (ie total gains minus total losses) less than this amount from all sources of capital gains (including cryptocurrencies) in a tax year, then you don’t owe tax and will not need to register for self-assessment.

If you are already registered for self-assessment and your proceeds are more than £49,200, but gains are below the annual exempt amount, then the gain will still need to be reported.

Get in touch

Should you have any queries regarding any issues raised in the above, or for advice connected to other types of HMRC investigations, please contact our tax team on 01788 539000 or 0116 261 0061 or email [email protected].