Cryptocurrency investors are being warned by HM Revenue & Customs (HMRC) about potential capital gains tax liabilities amid its crackdown on undeclared digital asset gains.
The tax authority has reportedly been sending "nudge letters" to individuals suspected of failing to properly declare their cryptocurrency profits.
According to HMRC, there are high rates of non-compliance when it comes to reporting crypto gains. Those found to have undisclosed crypto profits could face interest charges and penalties.
The warning comes as HMRC has recently opened a voluntary disclosure facility for those who need to declare previously unreported income or gains from crypto assets.
The tax landscape for crypto investors has become significantly more restrictive following recent changes to capital gains tax rates. Chancellor Rachel Reeves outlined said changes during her Autumn Budget.
Basic-rate taxpayers now face an increased CGT rate of 18 per cent, up from 10 per cent, following changes announced in the October Budget. Higher and additional rate taxpayers' rates jumped from 20 to 24 per cent.
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Crypto investors are at risk of being targeted in capital gains tax raid
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Adding to the burden, the annual tax-free allowance for capital gains has been dramatically reduced. Just last year, investors enjoyed a £12,300 tax-free allowance before any gains became taxable.
This allowance has now been slashed to just £3,000 since April, leaving crypto investors with a much smaller buffer against tax liability.
Earlier this week, Bitcoin surged past £61,910 for the first time ever, marking a dramatic rally in the cryptocurrency market.
The digital currency's value has jumped by 21.2 per cent in less than a week, rising from $67,814 to $82,170 by Monday lunchtime.
The remarkable price increase comes as Donald Trump strengthens his grip on executive and legislative power in the United States.
Market observers attribute the rally to expectations of a more crypto-friendly regulatory environment under a potential Trump administration.
These prospects appear even more likely if the Republican party secures complete control of Congress, as current indicators suggest. In sterling terms, one Bitcoin is now valued at £63,753.
Despite this boon, James Carn, an associate director in Private Client Tax at Evelyn Partners, warns that crypto holders need to be vigilant about their tax obligations.
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Reeves has outlined major changes to capital gains tax PA Media"The tax treatment of crypto assets can be complex," he explains, noting that HMRC generally considers profits from crypto trading within the scope of capital gains tax.
Taxable disposals aren't limited to direct sales for cash. They also include exchanging crypto-assets for goods or services, switching between different cryptocurrencies, or giving away digital assets.
For most investors, these transactions will fall under capital gains tax rather than income tax, with HMRC only accepting trading status in exceptional circumstances.
Investors with unclaimed losses from the past four years can offset these against gains by writing to HMRC.
