Are cypto investors heading for huge, surprise tax bills?

Last year, the City watchdog estimated that there are 2.3 million crypto investors in the UK. HMRC has recently sent “educational” letters to only 8,329 of them – warning of their potential capital gains tax liability. Does this mean that everyone else is due a surprise tax bill?

Does everyone with crypto investments owe Capital Gains Tax?

Every taxpayer has a Capital Gains Tax allowance. Currently, this is set at £12,300 per tax year. You only owe Capital Gains Tax on anything over that threshold.

So you won’t owe Capital Gains Tax (CGT) if crypto is your only investment and you don’t make more than £12,300 profit on its sale. The situation gets more complicated and you may owe CGT if your crypto investments are part of a portfolio that makes more than the Capital Gains Allowance in total, over the course of the tax year.

I’ve got some Bitcoin investment, why aren’t HMRC writing to me?

Most crypto investors have digital assets worth up to £1,000 – so HMRC probably won’t be in touch if you’re around this figure. Remember, you need to be over the allowance threshold to be liable.

An HMRC spokesperson said: “We want to help people get their tax affairs right and nudge letters are one of the ways we do this. Awareness raising letters are not sent to all taxpayers, but to those who we have reason to believe would most benefit from additional information.

“Customers that have invested in crypto assets can find out more about the circumstances when tax may be due by going to GOV.UK and searching ‘tax when you sell crypto assets’.”

But this approach to Capital Gains Tax awareness is being criticised for possibly leaving crypto investors without the necessary information to properly account for the tax on their investments’ profits.

Quilter’s Shaun Moore said: “Considering the significant interest in cryptoassests, it’s surprising to see that only 8,329 people have been sent a letter asking them to review how much capital gains tax they might owe.

“Most people who do not pay the necessary tax on their gains are likely to be ignorant of what is required.”

And absolutely nobody wants a ‘surprise’ tax bill. To check your position, check out HMRC’s ‘Tax on Crytpoassets’ publication. And then have a discussion with your accountant, tax advisor or HMRC if you’re worried about not identifying the correct liability.