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I have received a letter from HMRC about my crypto assets. Does this mean I’ve made a mistake on my last tax return and owe them tax?
Henry Lowe, a partner at Mercer & Hole, says HMRC is closely scrutinising the reporting of all crypto transactions, including for cryptocurrencies and non-fungible tokens, and this summer has sent out so-called “nudge” letters to remind individuals, with more due to go out this month. This doesn’t mean you have made a mistake, but it is a reminder to double-check your returns.
Since April, all crypto sales need to be separately identified on UK tax returns in a section for recording this information. HMRC will check your annual tax reporting against the data it receives directly from crypto exchanges and other trading platforms.
For the past couple of years, HMRC has obtained the contact details of those trading in crypto assets on the main crypto exchanges (such as Coinbase, Binance or Kraken). Under UK regulations, to have UK customers, these exchanges are expected to disclose user data to HMRC.
Irrespective of how your crypto has performed, it is crucial to make sure you are reporting your crypto correctly, to get your tax right, or to take advantage of valuable tax relief on any losses. If you have made a reporting mistake, you can use HMRC’s digital disclosure service to bring worldwide tax affairs up to date.
If there is tax to pay, the penalties will be much larger (up to 200 per cent) if HMRC gets in touch with you first, so it is always better to bring any historic reporting to their attention.
Our next question
Having built a successful business, I recently sold it for a large profit so I could retire, and have started looking at how I could reduce my inheritance tax bill. I’ve seen a few different options such as putting money into an investment fund focusing on companies expected to qualify for business relief, or I was considering setting up a trust for my two adult children? Are there certain assets or investment vehicles I could use to minimise my liability, and what sort of due diligence should I be doing?
Where you have always remained invested in crypto and not exchanged your crypto for “fiat” currency or withdrawn the funds, UK tax charges and tax reporting can still arise. The transfer of one crypto asset or currency to another is a disposal under UK tax rules. Therefore, a careful check of your crypto transactions is important to make sure your tax reporting is up to date.
If you are not domiciled in the UK, HMRC’s view is that crypto is situated where the holder is resident. This means that the remittance basis of taxation will generally not protect crypto gains or income. If you were relying on your domicile status to protect crypto gains, you will want to check whether you have missed any tax reporting.
Finally, if you are unsure about any reporting matters relating to your crypto assets, you should take professional tax advice.
The opinions in this column are intended for general information purposes only and should not be used as a substitute for professional advice. The Financial Times Ltd and the authors are not responsible for any direct or indirect result arising from any reliance placed on replies, including any loss, and exclude liability to the full extent.
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