Tax warning for cryptocurrency investors: HMRC must now receive account information from providers

It will be more difficult for investors to avoid paying taxes on profits due to new cryptocurrency regulations that require your information to be sent to HMRC for tax purposes

Here are all the things you should know before making an investment in the digital asset.

New regulations will make it more difficult for investors who trade Bitcoin, Ethereum, Tether, or other well-known cryptocurrencies to avoid paying taxes on their gains because crypto investment platforms will have to give HMRC your personal information for tax purposes.

The Cryptoasset Reporting Framework (CARF), which went into effect on January 1st, mandates that cryptocurrency companies give HMRC information about the activity and tax residency of their users.

A multinational agreement is the CARF. While HMRC will also receive information on UK-based cryptocurrency investors who have utilized platforms in other CARF-compliant nations, information on non-UK users will be shared with jurisdictions that have also adopted the CARF.

Investors will find it more difficult to avoid declaring capital gains by purchasing cryptocurrencies like Bitcoin as a result of these disclosures.

According to Dawn Register, a tax dispute resolution partner at accounting firm BDO, "these new rules coming into force on January 1st will give HMRC access to a much richer dataset on crypto asset investors and their transactions." "Data will be automatically transferred across international borders, enabling HMRC to more effectively target UK taxpayers who it believes may not have accurately declared their gains. A "

What does this mean for cryptocurrency investors, and when will you have to pay taxes on your cryptocurrency holdings?

How do cryptocurrencies pay taxes?

To put it simply, when cryptocurrency assets are sold, they are subject to capital gains tax (CGT). Your CGT calculation for the year you made the trade will take into account any profit you make from selling a cryptocurrency asset.

Selling a cryptocurrency asset for fiat money, exchanging it for another cryptocurrency asset, spending it, or giving it to someone elseaside from a spouse, civil partner, or charityare all examples of disposal.

You must report the gains to HMRC in a tax return and pay CGT if your total gains from selling assets exceed the CGT threshold.

However, because cryptocurrencies are transnational and decentralized, it has historically been challenging for tax authorities to collect the capital gains due on cryptocurrency investments.

According to Register, "HMRC has been concerned about high levels of non-compliance among crypto investors for some time."

She went on, "Those who made cryptocurrency gains in the 2024 - 2025 tax year might have to file a tax return before January 31, 2026."

By offering a disclosure facility for undeclared gains or unpaid tax prior to April 2024, HMRC also hopes to encourage individuals who have underpaid CGT on cryptocurrency assets in prior years to make amends.

How to lower the CGT on cryptocurrency assets.

For CGT purposes, you can deduct a loss on the sale of cryptocurrency assets from your profits.

Up to four years after the conclusion of the tax year in which they sold a cryptocurrency asset, investors are also permitted to report losses. This can be carried forward to subsequent years or deducted from any CGT charge in the current tax year, according to Register.

Although the majority of cryptocurrency assets cannot be directly held in an ISA, there are a few ways to be exposed to changes in cryptocurrency prices inside the tax-efficient framework.

Until April 5th, cryptocurrency exchange-traded notes (ETNs) may be kept in an ISA for stocks and shares. They must then be held in the less popular Innovative Finance ISA.

This puts cryptocurrency ETN investors at risk because, in the event that the market is experiencing a downturn, they might have to sell at a loss, crystallizing losses. However, for CGT purposes in that case, the loss might be deducted from any additional profits.

Our article on ten strategies to reduce your capital gains tax liability might be of interest to you if you are an investor.