UK Tax Authority Doubles Scrutiny on Crypto Investors, Increases Warning Letters on Digital Asset Gains

The UK tax authority, HM Revenue & Customs (HMRC), has recently bolstered its efforts to scrutinize crypto investors. This comes in light of the agency doubling the number of warning letters it sends out to those it suspects are underreporting or evading taxes on their digital asset gains.

Increasing Focus on Crypto Investors

Data obtained under the Freedom of Information Act indicates that HMRC sent nearly 65,000 such letters in the 2024-2025 tax year. This is a significant upswing from the mere 27,700 letters sent the year prior. This trend reiterates the increasing focus of the HMRC on ensuring tax compliance related to cryptocurrencies. The HMRC utilizes so-called ‘nudge letters.’ This method is specifically designed to encourage investors to self-correct their tax declarations before initiations of formal investigations. Over the past four years, the HMRC has sent 100,000 of these ‘nudge letters,’ suggesting an accelerated level of activity as the adoption and prices of cryptocurrencies continue to surge.

Increasing Crypto Holders in the UK

According to the Financial Conduct Authority, seven million adults in the UK currently hold crypto, a stark increase from the estimated 5 million in 2022 and 2.2 million in 2021. This signals the increasing interest and widespread adoption of crypto in the UK. Neela Chauhan, a partner at UHY Hacker Young, which submitted the Freedom of Information request, stated, “The tax rules surrounding crypto are quite complex, and there’s now a volume of people who are trading in crypto and not understanding that even if they move from one coin to another it triggers capital gains tax.”

Improved Market Visibility and New Tax Framework

In recent times, the HMRC’s visibility into the crypto market has been exponentially improved. The agency is now receiving transaction data directly from major crypto exchanges. Recently, the Organisation for Economic Co-operation and Development (OECD) proposed to grant automatic access to global exchange data from 2026 under its new Crypto-Assets Reporting Framework (CARF). This development brings new capabilities to not only monitor but also manage tax compliance for assets and transactions in the crypto space.

Updates on Crypto Tax Policies

In the United States, lawmakers are exploring updates to crypto tax policies, including potential exemptions for small-scale transactions and clarification about the handling of staking rewards. Congressional representatives are currently debating if daily crypto payments should trigger capital gains tax, and how income generated from staking services should be classified. Coinbase’s VP of Tax, Lawrence Zlatkin, has urged Congress to adopt a de minimis exemption for crypto transactions below $300. Concurrently, South Korea’s National Tax Service (NTS) is also turning up the heat on crypto tax evasion. The regulator has issued a warning that assets stored in cold wallets will be seized if found to be associated with unpaid taxes. This suggests a global trend in the diversification of the methods that tax authorities are using to ensure tax compliance in the digital asset scene. In conclusion, the intensifying scrutiny from tax authorities worldwide underscores the importance of tax compliance in the crypto arena. Both investors and traders alike have to navigate this new, burgeoning, and rapidly evolving fiscal landscape carefully. As global adoption increases and regulatory frameworks mature, it’s becoming increasingly crucial to learn and adhere to the tax liabilities associated with digital asset transactions.