New rules mean it will be harder for investors trading Bitcoin, Ethereum, Tether or other popular cryptocurrencies to avoid paying taxes on their gains, as crypto investment platforms will be forced to pass your personal details to HMRC for tax purposes.
The Cryptoasset Reporting Framework (CARF) came into effect on 1 January, and requires crypto firms to provide information to HMRC on the activity and tax residency of their users.
The CARF is a multinational agreement. Information on non-UK users will be exchanged with jurisdictions who have also implemented the CARF, while HMRC will likewise receive information on UK-based crypto investors that have used platforms in other CARF-compliant countries.
These disclosures will make it harder for investors to avoid declaring capital gains by investing in cryptocurrencies such as Bitcoin.
“These new rules coming into force from 1 January will give HMRC access to a much richer dataset on crypto asset investors and their transactions,” said Dawn Register, tax dispute resolution partner at accountancy firm BDO. “Information will be shared automatically across international borders, allowing HMRC to better target those UK tax residents it suspects of failing to correctly declare their gains.”
What do the new changes mean for crypto investors, and when will you need to pay tax on your crypto?
Simply put, crypto assets (including cryptocurrencies) become subject to capital gains tax (CGT) when they are disposed. If you make a profit on disposal of a crypto asset, that will count towards your CGT calculation for the year in which you made the trade.
Disposal can refer to selling a crypto asset for fiat currency, trading it for another crypto asset, spending it, or gifting it to someone else (other than a spouse, civil partner or a charity).
If your total gains from disposing assets falls above the CGT threshold then you will need to report the gains to HMRC in a tax return and pay CGT.
But the transnational, decentralised nature of cryptocurrencies has historically made it difficult for tax authorities to collect the capital gains owed on crypto investments.
“HMRC has been concerned for some time about high levels of non-compliance among crypto investors,” said Register.
“Those who made crypto gains in the 2024-2025 tax year may be required to file a tax return before 31 January 2026,” she continued.
HMRC is also looking to encourage people who have underpaid CGT on crypto assets in previous years to correct their affairs by running a disclosure facility for undeclared gains or unpaid tax prior to April 2024.
If you have disposed of crypto assets at a loss, then you can offset this against your profits for CGT purposes.
“Investors can also report losses up to four years after the end of the tax year in which they disposed of a crypto asset. This can be offset against any CGT charge in the current tax year or carried forward to future years,” said Register.
Most crypto assets can’t be directly held in an ISA, but there are some ways to gain exposure to crypto price movements within the tax-efficient wrapper.
Crypto exchange-traded notes (ETNs) can be held in a stocks and shares ISA until 5 April. After that, they will need to be held in the less commonly-used Innovative Finance ISA.
That poses a risk to crypto ETN investors because they may be forced to sell at a loss if the crypto market is enduring a downturn at the time, crystallising losses. In that scenario, though, the loss could be offset against any other profits for CGT purposes.
If you are investing, you may also be interested in our article on 10 ways to cut your capital gains tax bill.
