Crypto-holders will have experienced a bumpy ride this last 12 months, with prices reaching an all-time high in April before dropping significantly – in some cases more than 50%. At the time of writing prices are as turbulent as ever, recently touching $50,000 before dropping again. Of course, only time will tell which direction prices are heading, and whether the previous all-time high will be surpassed. Thomas Cattee, head of white-collar crime, and Tim Crook, head of tax at Gherson Solicitors, write


As a result of this price volatility, there will certainly be individuals who have experienced significant gains – and losses – in crypto.

Those fortunate enough to have sold at the top, or indeed after any gains, will be liable for capital gains tax on any gains made.

Income tax

However, if individuals buy and sell exchange tokens with such frequency, level of organisation and sophistication that the activity is considered to be trading, then income tax will take priority over capital gains tax and will apply to profits or losses.

Indeed, the treatment of crypto for tax purposes is usefully dealt with in guidance published by HMRC on 30 March 2021 by way of a Cryptoassets Manual. The manual has the aim of helping “people understand the tax implications that can arise from transactions involving cryptoassets”.

The manual also confirms that individuals will also be liable to pay Income Tax and National Insurance contributions on cryptoassets which they receive from their employer as a form of non-cash payment or mining, transaction confirmation or airdrops.


Another critical issue is where cryptoassets are deemed to be located for tax purposes. This is especially important for UK-resident non-UK-domiciled individuals who generally do not pay inheritance tax on non-UK assets or pay income tax and capital gains tax on non-UK income and gains unless they are remitted to the UK.

The manual intimates that HMRC considers cryptoassets to be situated where the beneficial owner is resident, which is bad news for such individuals. However, it is important to note that the manual is guidance only and not law, so HMRC’s policy could change over time.

HMRC powers

Another aspect of the manual that will have piqued much interest is with regard to HMRC’s information-gathering powers. In this respect, the manual notes that HMRC can make information requests from cryptoexchanges – where individuals and businesses can buy, sell and hold cryptoassets – under the powers conferred by schedule 23 to the Finance Act 2011 or schedule 36 to the Finance Act 2008. There are also additional routes including through the General Data Protection Regulation, Mutual Legal Assistance Treaty, European Investigation Order and Production Order. The Mutual Legal Assistance and European Investigation Order route will potentially enable HMRC to obtain information from entities located overseas.

To shed some light on the use of these powers, Gherson Solicitors recently sent a Freedom of Information Request to HMRC, following which HMRC confirmed that:

  • HMRC has used powers provided by parliament to gather information from entities about their customers’ transactions in, and holdings of, cryptoassets;
  • HMRC has exercised rights under International Treaties to request information from other tax administrations to obtain information held by cryptoasset exchanges and data holders outside the UK; and
  • HMRC also received data derived from cryptoasset exchanges about their users as part of spontaneous exchanges of information from other tax administrators.


HMRC seeking data from crypto exchanges is not new. It was reported back in August 2019 that crypto-exchanges that do business in the UK, including Coinbase, eToro and had received letters from HMRC requesting customer data and transaction histories.

More recently, and in October 2020, HMRC confirmed to The Block that it sought customer information from Coinbase UK. A spokesperson for HMRC went on record, telling The Block: “We want to help people get their tax affairs right and believe that taxpayers want to get it right. HMRC regularly gathers data from a range of information sources using powers provided by Parliament. Data collected by HMRC is used to improve the integrity of the tax system and to identify those that have failed to declare their gains”.

This request was, in fact, quite narrow. A spokesperson for Coinbase confirmed the development, stating: “These requests are commonplace for financial services companies. Through a series of constructive conversations with HMRC, we agreed upon a more limited and focused disclosure, eventually narrowing it down to customers with a UK address who received more that £5,000 worth of cryto assets in their Coinbase account during the tax year of 2019-20.”


In light of the publication of the manual, and the fact that there will be individuals and businesses who have made significant gains during the last six months – and indeed further back – there will therefore be individuals seeking advice on the tax treatment of their crypto.

Further, HMRC will undoubtedly continue to use the wide range of information powers to gather information from this jurisdiction and beyond. Therefore, if you hold cryptoassets, including through an exchange, it is very likely that HMRC will have received information on those holdings – or if not already, at some point in the future.

If you are in the fortunate position of sitting on significant gains and require guidance on the tax position, or if you have been approached by HMRC, or if you feel an approach to HMRC is needed, then specialist legal advice is always recommended.