Over the past year, prices of crypto assets like Bitcoin have significantly soared to new highs. With long-term UK crypto users in profit, they may be in line for incoming tax troubles.
The UK Self Assessment tax deadline for the 2024-2025 tax year is January 31st, 2025. His Majesty’s Revenue and Customs (HMRC), the government department responsible for tax collection, has increased its scrutiny of UK crypto users regarding capital gains recorded on assets like Bitcoin within the past year. Failure to submit returns by this deadline can result in significant penalties.
Higher Capital Gains Taxes Affects Crypto
Bitcoin’s recent surge to record highs has significantly impacted capital gains tax liabilities. Governments levy capital gains tax on profits from selling assets, including cryptocurrencies. The escalating price of Bitcoin results in substantially higher tax obligations for investors who sell or dispose of their holdings.
Notably, this surge beyond $100,000 has prompted warnings from the HMRC regarding potential liabilities. The government department is actively increasing its scrutiny of crypto profits, issuing “nudge letters” to individuals suspected of under-reporting gains. These letters warn that undisclosed profits could result in additional taxes, interest, and penalties of up to 100% of the tax owed.
Many crypto investors may be unaware of their reporting obligations, particularly those transitioning from PAYE tax systems to mandatory self-assessment. Cryptocurrency profits exceeding the £6,000 tax-free allowance for 2023-2024 are taxed at 10% or 20%.
Additional cryptocurrency income above the £12,570 personal allowance is subject to tax rates between 20% and 45%, depending on the transaction, applicable tax, and income tax bracket. The capital gains tax-free allowance will decrease from £6,000 to £3,000 for the 2024-2025 financial year.
Penalty for Negligence
The penalties for late submission are considerable. An initial £100 fine is levied, which escalates to daily penalties of £10 after three months and culminates in a maximum penalty of £900.
The increased complexity stems from recent revisions to tax laws announced in the October budget. These changes, which impact both basic-rate and higher-rate taxpayers, increase the rates payable on income and capital gains. The basic rate increased from 10% to 18%, and the higher rate increased from 20% to 24%.
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