UK crypto investors could face significant tax bills, even if they have not yet received warning letters from HM Revenue & Customs (HMRC). The tax authority is intensifying its efforts to identify and track undeclared digital asset income.
Recently, it was revealed that HMRC issued nearly 65,000 “nudge letters” during the 2024–25 tax year. This figure represents more than double the number of letters sent in the preceding year. These letters serve as an urgent request for investors to review their tax filings and voluntarily declare any crypto-related gains before potential audits commence.
However, tax professionals are cautioning that HMRC's increasing reliance on exchange data and international reporting agreements means that investors who have not received a letter should not assume they are free from scrutiny.
"Not reporting cryptocurrency transactions to HMRC is illegal, regardless of whether you’ve been contacted yet," stated Andrew Duca, founder of the crypto tax platform Awaken Tax. He added, "So even if you haven’t received a warning letter, the fact that HMRC has issued so many this year should serve as a wake-up call."
Duca explained that HMRC typically detects non-compliance by cross-referencing bank records, exchange data, and self-assessment tax forms. Any discrepancies, such as undeclared deposits or transfers, can trigger warning letters or initiate formal investigations.
Investors with higher incomes and those holding substantial on-chain portfolios are particularly likely to be targeted, as data sharing between cryptocurrency exchanges and regulatory bodies continues to expand.
HMRC Enhances Crypto Oversight
Cryptocurrency exchanges operating within the UK, as well as those serving UK customers internationally, are legally obligated to provide transaction data to HMRC. With the upcoming implementation of the Organisation for Economic Co-operation and Development’s (OECD) Crypto-Asset Reporting Framework (CARF) in 2026, HMRC will gain automatic access to information from global trading platforms.
"It’s far better to be proactive and report on your activity now, rather than wait for HMRC to pull you up on it," Duca advised.
He clarified that crypto activities become taxable not only when digital assets are converted into fiat currency like pounds but also when they are swapped between different tokens or generate income through activities such as staking, airdrops, or yield farming. The only exceptions are purchases made with fiat currency and transfers between personal wallets.
To calculate capital gains, HMRC employs a three-tiered “spooling” method. This involves first assessing same-day trades, then transactions within a 30-day window, and finally using an average cost for older purchases. For individuals engaged in active trading, this calculation process can become quite complex. Duca recommends the use of specialized tax software designed for crypto reporting to manage these complexities effectively.
Guidance for Investors Contacted by HMRC
Duca emphasized that investors who receive a letter from HMRC should seek professional advice immediately. Specialist accountants can assist in preparing accurate transaction reports and can negotiate with the tax office if any underpayment is identified. Failure to respond to an HMRC letter can result in penalties or lead to further investigation.
"Using crypto tax software will also help you to generate accurate reports of all your activity as accurately and efficiently as possible," Duca stated. "Lastly, you need to be prepared to pay. If you owe taxes, you’ll need to settle them."
He further noted that decentralized exchanges (DEXs) and cold wallets are not exempt from HMRC's reporting requirements. "You are legally required to report on all DEX transactions, cold wallet activity and hot wallet transfers," he confirmed.
Meanwhile, in the United States, lawmakers are actively exploring potential updates to crypto tax policy. These discussions include proposals for exempting small transactions from taxation and clarifying the tax treatment of staking rewards.
During a recent hearing of the Senate Finance Committee, members debated whether everyday crypto payments should be subject to capital gains tax and how to appropriately classify income derived from staking services. Lawrence Zlatkin, Coinbase’s vice president of tax, advocated for Congress to adopt a de minimis exemption for crypto transactions valued under $300.