Cryptoassets and capital gains tax (CGT)

In general, HMRC treats engagement with cryptoassets like bitcoin, litecoin and ether as investing, with gains and losses subject to capital gains tax (CGT) when they’re disposed of.

Cryptoassets are defined by HMRC as “cryptographically secured digital representations of value or contractual rights that can be transferred, stored and traded electronically”.

In rare circumstances where an individual is trading with such frequency and sophistication that HMRC would consider them to be carrying out a trading activity, then income tax could apply rather than CGT.

Implications following the crypto market crash in November

However, some individuals (and companies) may potentially have capital losses from holding cryptoassets, particularly following the crypto market crash in November 2022.

Those losses could be due, for example, to the resultant fall in the value of their assets or the loss of assets due to the collapse of FTX Trading Ltd – one of the largest crypto exchanges.

Act soon to review and claim

It’s advisable to review any capital losses on cryptoassets and to make a claim, where possible, but the timing of claims could be important. There are some unusual cryptoassets available and care needs to be taken over how any income and sales proceeds are treated in CGT-related claims.

A capital loss for an individual must be claimed within four years of the end of the tax year in which it arose, so by 5 April 2024 for losses that arose in 2019/20, for example.

Making a claim for capital losses on cryptoassets could help to soften the blow of the severe cuts in the CGT annual exemption – down from £12,300 to £6,000 since 6 April this year and down to £3,000 from April 2024.

Can we help?

Shipleys has been advising clients on the tax treatment of cryptoassets for some years now. For help and guidance, please do get in touch with your usual Shipleys contact or one of our specialists shown on this page.

Specific advice should be obtained before taking action, or refraining from taking action, in relation to this summary. If you would like advice or further information, please speak to your usual Shipleys contact.

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