What are undeclared crypto gains?

Undeclared crypto gains are taxable gains arising from either sales of crypto for fiat currency or exchanges of one form of crypto for another that have not been reported to HMRC and on which an unpaid tax liability exists.

Does HMRC already know about my crypto?

Yes, it is increasingly likely that HMRC will have details of your crypto transactions. Under The Reporting Cryptoasset Service Providers (Due Diligence and Reporting Requirements) Regulations 2025 HMRC receive information about crypto transactions from UK exchanges. 

These regulations apply the rules and commentary set out in the OECD Crypto-Asset Reporting Framework, and require platforms with a UK connection that carry out exchanges between crypto and fiat currencies or between different crypto assets to carry out due diligence on users and let users know that information about their crypto transactions will be reported to HMRC. This type of data collection began on 1 January 2026 and the data must be supplied to HMRC by May 2027.

What triggers an HMRC investigation into undeclared crypto gains?

 The type of behaviours that might trigger an HMRC crypto tax investigation will include a social media presence boasting about crypto gains or a lifestyle funded by crypto, selling crypto for fiat currency, exchanging one form of crypto for another and using crypto to buy expensive assets such as supercars. Cashing in crypto to buy a house for example with the cash passing through your bank account, is also likely to be reported by your bank to HMRC which will then enquire about the source of your funds if you have not reported gains commensurate with that expenditure.

What is the difference between voluntary disclosure and being investigated?

A voluntary disclosure is when you take the initiative and declare unreported crypto gains to HMRC instead of waiting to see if HMRC discover your gains and open an investigation into you. If you may have crypto gains that you have not told HMRC about then it is best to calculate your UK tax liability on those gains and then make a voluntary disclosure using HMRC’s Cryptoasset Disclosure Service. In this way you will reduce the penalties that HMRC may charge as well as setting your mind at rest. 

What penalties apply to undeclared cryptocurrency gains?

Serious penalties can apply if you fail to declare crypto gains to HMRC up to and including criminal prosecution and seizure of your crypto in the worst cases. You can face late filing penalties if you do not file your tax return on time, a £300 penalty if you fail to supply your correct personal details to a regulated crypto exchange, penalties for careless behaviour of 0% to 30% of the tax and then 20% to 100% of the tax (or up to 200% if there is an offshore dimension) if your failure has been deliberate, plus interest on the unpaid tax.

Is the tax on crypto gains always capital gains tax, or can it be income tax?

Normally, HMRC treat crypto gains as a capital gain liable to CGT. However, income tax will apply where you are paid in crypto for services rendered instead of cash or you receive interest on DeFi lending or from staking.

How far back can HMRC look into undeclared crypto?

Up to 20 years if HMRC can show that you knew or must have known that tax was due and yet you failed to declare it, 12 years for certain matters involving offshore gains, 6 years if you have been careless in not reporting the gain and 4 years if they “discover’ your unreported gain after the normal 12 month enquiry period into your tax return has expired.

What is CARF, and why does it change the position from 2027?

“CARF” is HMRC’s Cryptoasset Reporting Framework and it forces UK crypto exchanges to register and send information to HMRC each year about the crypto transactions and tax residency of their users. Information about users who are not UK resident is also collected and HMRC sends that information to the tax authorities in other countries that have a CARF. HMRC also receives information from other countries about potential tax evasion and avoidance by persons connected with the UK who carry out crypto transactions. The intention is to give HMRC knowledge of crypto transactions carried out on the main crypto exchanges in order to cut down on tax evasion and avoidance through non-reporting of crypto gains.

Data collection by exchanges began on 1 January 2026 and they must begin reporting that data to HMRC in May 2027 so it is incumbent on taxpayers to ensure that they report crypto gains to HMRC on their 2025/26 and subsequent tax returns or face an automatically generated HMRC investigation if the gains reported by the taxpayer do not match the data reported about them by exchanges to HMRC. 

Does it make a difference if the gains were on a foreign exchange?

Generally no, because if you are UK tax resident, HMRC treat the location or situs of the crypto as located in the UK and so the location of the crypto exchange does not affect your UK tax liability. For UK tax residents, the location of the exchange therefore makes no difference to your tax liability. 

What should I do if I have received an HMRC nudge letter?

An HMRC crypto tax nudge letter is sent by HMRC automatically to taxpayers who have been identified by HMRC’s computer as having made gains from crypto that have not been reported to HMRC by the taxpayer. The intention is that the letter will nudge the taxpayer to review their tax position and disclose voluntarily to HMRC and pay any unpaid tax on undeclared crypto transactions. Making a voluntary disclosure should normally avoid an investigation and minimise penalties. Nudge letters should not be ignored and however tedious it may be, it is better to engage with HMRC to resolve the matter properly. HMRC are like a Victorian steamroller and while they can move very slowly while producing a lot of steam, they eventually crush everything in their path unless you can persuade them to stop. 

Conclusion 

If you think you have undeclared crypto tax liabilities you are increasingly likely to be found out by HMRC through either the information sources they now have or through regulated exchanges and banks reporting your transactions to them. In the long run, it is best to make a voluntary disclosure of your undeclared crypto liabilities to HMRC on order to resolve the matter. If you wish to discuss making a voluntary crypto disclosure to HMRC or you are under HMRC crypto investigation, please contact Patrick Cannon here for legal advice about the options open to you.