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January 21, 2022

Cryptoassets: HMRC’s 'Nudge' Campaign directed at Crypto Investors

The word ‘Crypto’ by its definition has the meaning ‘hidden’ or ‘secret’. In a new ‘nudge’ campaign, HMRC appears to be alerting taxpayers that there could be undeclared tax on the disposal of their cryptoassets.

At the end of October 2021, HMRC’s Wealth External Forum issued a briefing that they will be sending ‘nudge’ letters from November 2021, to taxpayers who they believe have held cryptoassets, and to highlight the potential tax implications. Examples of the letters sent can be found here.

Over the last couple of years, HMRC have conducted a number of ‘nudge’ letter campaigns including targeting taxpayers to review their non-domicile tax position and income from rental properties.

Why have HMRC sent these letters?

Firstly, just because you received this letter does not necessarily mean that you have incorrectly completed a self assessment tax return, or you owe Capital Gains Tax (“CGT”).

These letters are used to prompt taxpayers to review their tax affairs and educate them on the tax implications of disposing of cryptoassets. However, these letters should not be ignored and full communication with HMRC is essential to ensure your tax affairs are up to date.

In the briefing, HMRC stated:

“We will be writing to customers who we believe have held cryptoassets, based on third party information obtained using our statutory powers”.

What information is in the 'nudge' letter?

The letter details three disposals to consider when dealing with cryptoassets:

  1. Selling cryptoassets for flat currency (e.g. USD or GBP);
  2. Exchanging one cryptoasset for another cryptoasset – (e.g. Bitcoin to Ether) HMRC have stated that you still potentially need to pay CGT on this disposal, even if you have not converted them into a flat currency; and
  3. Using cryptoassets to buy any goods or services.

We have recently written an article on the taxation of cryptocurrencies which can be found here. There can be numerous transactions involved in dealing with cryptoassets which is potentially why HMRC are trying to alert taxpayers to the disposals mentioned above, as they may be unaware of the tax implications.

Note, if chargeable gains from all asset disposals in the tax year (not just cryptoassets) are above the annual exempt amount, CGT may be payable. The annual exempt amount for the 2020/21 Tax Year is £12,300.

Furthermore, the deadline for the submission of a 2020/21 self assessment tax return is 31 January 2022. Therefore, for taxpayers who have had cryptoasset transactions between 6 April 2020 and 5 April 2021 (or earlier), it would be prudent to review your affairs as soon as possible, to ensure that any tax/compliance is up to date.

Please note that the taxation of cryptoassets is an evolving concept. Therefore, if you have any queries around any of the topics discussed in this article, please get in contact with a member of the team for expert tax advice.

Related Articles 

Computer Age: Taxation of Cryptocurrencies


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