The conclusion of the US elections “appears to have triggered a starting gun on a crypto price rally,” said Chris Etherington, RSM private client tax partner. He noted the price of Bitcoin in particular had broken new records, as it soared to just under $90,000 (£71,000) from around $67,000 on 4 November 2024.
However, while investors in Bitcoin and other cryptocurrencies may welcome these gains, “HMRC will be looking to ensure taxpayers report and pay any associated tax bills,” Etherington added.
James Carn, private client tax associate director at Evelyn Partners, said the rapid appreciation in cryptocurrency coincides with “a tighter tax environment” for investors in the UK. Therefore, he said, if those holding Bitcoin and other digital currencies decide to cash in or take profits, “they need to watch out for a potential tax liability” or they could fall foul of HMRC.
What’s behind the rise?
According to Etherington, the Financial Conduct Authority estimates that 9% of adults in the UK, [or] approximately 4.97m people, owned cryptoassets in August 2022, up from 4% and 2.3m in 2021. While a cut in interest rates across both sides of the Atlantic may have played a factor, the return of president-elect Trump to the White House is likely to be the key driver in cryptocurrency price rises now and in future, Etherington said.
Furthermore, “many commentators are anticipating that the US may now take a more permissive and relaxed approach to crypto regulation in the future,” potentially fuelling further price rises.
Investment platform AJ Bell said it saw “a big jump” in customers trading US shares on presidential election results day on its platform. One of the most traded US company shares that day was MicroStrategy Inc, an American Bitcoin development company, it added.
According to Dan Coatsworth, investment analyst at AJ Bell: “There were more buys than sells for MicroStrategy on election results day – investors have been using this company as a way to play bitcoin without directly owning the cryptocurrency.” He noted that MicroStrategy “held 279,420 bitcoin as of 10 November 2024, worth $24bn at the time of writing” two days later.
“The US may now take a more permissive and relaxed approach to crypto regulation in the future.”
Chris Etherington, private client tax partner, RSM
Crypto tax issues
However, although the crypto market in the UK has grown, “so too has the tax complexity,” RSM’s Etherington noted. Changes to CGT rules in recent years and in the Budget on 30 October will mean that many more taxpayers may find themselves with higher tax bills and a requirement to submit a tax return, he said.
“With new regulations on the way that will make it easier for HMRC to receive data on crypto, and an interest rate on late tax payments of 4% above the Bank of England base rate [taking effect from April 2025], taxpayers cannot simply stick their heads in the sand.”
According to Carn, this year HMRC has been sending ‘nudge letters’ to those it suspects of failing to pay the correct tax, warning recipients that if an assessment concludes that there is additional tax to pay on previously undisclosed crypto gains, there may also be interest due on any late payments as well as penalties to pay.
“HMRC sees the profit or loss made on buying and selling of exchange tokens as within the scope of CGT,” Carn explained. “Only in exceptional circumstances will HMRC accept that buying and selling of crypto amounts to a trade for tax purposes – and would therefore be included in income tax liabilities instead.”
Chargeable disposals for CGT purposes do not just include sales of cryptoassets, but they also include exchanging a cryptoasset for something else, whether buying a good or service or changing to another cryptoasset, and giving away cryptoassets. This means that even if a cryptoasset or cryptocurrency token is exchanged for another cryptoasset or cryptocurrency token, a CGT liability can be triggered – even if that asset or token is not converted back into fiat currency or cash.
Etherington advised that cryptoassets holders keep detailed records of their trades, consider using crypto tax software to help, and utilise available tax allowances – although he warned that cryptoassets cannot be held in an individual savings account (ISA) tax-free wrapper, and do not benefit from any special tax reliefs.
