CryptoassetsOct 22 2021

HMRC to send nudge letters to crypto asset investors

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HMRC to send nudge letters to crypto asset investors

HMRC is preparing to send ‘nudge’ letters to holders of crypto assets to remind them to pay the correct tax.

The letters are being sent out to encourage investors to ensure they have paid the correct amount of income and capital gains tax (CGT) on any income they have received from their crypto asset holdings.

A spokesperson for HMRC said the firm wants to help people to get their tax affairs right and to educate those who might need help.

They added the letters will be sent out next month.

The spokesperson said: “Our letter asks crypto asset holders to review their transactions to ensure that they are declared correctly. We have published detailed guidance to help our customers apply tax law to crypto assets correctly.

"The Cryptoassets Manual explains the tax consequences of different types of transactions involving crypto assets and this can be found on the government website.”

Tax is payable on any profit received from the disposal of cryptocurrencies, including when they are sold, exchanged for another crypto asset, or when they are used to buy goods or services.

HMRC can gain data on who is invested in crypto assets through data requests to UK-based cryptocurrency exchanges.

Graham Boar, tax partner at UHY Hacker Young, believes HMRC might suspect that large amounts of CGT and income tax generated from crypto assets have been undeclared for tax purposes.

“HMRC suspects that there is an increasing amount of hidden wealth thanks to the rise of cryptocurrencies. Many retail investors in cryptocurrencies are under the misunderstanding that HMRC is unable to find out about their crypto investments and any gains they may have made,” he warned. 

Gary Ashford, partner at Harbottle & Lewis, said he expects to see more of this happening in the coming 12 months.

“HMRC has been using its extensive information powers to secure data on holders of crypto from crypto exchanges, and as we have seen in the past years in relationship to those holding undeclared offshore bank accounts, will start to challenge those whom they believe to be holding crypto and not declaring associated income or gains."

He recommended that investors should seek clarity from experts as soon as possible.

“Separately, the current HMRC view that crypto situs is where the beneficial owner is resident, is a very significant issue for UK resident non-doms, who may believe the crypto is non UK situs and so non-taxable here,” he added.