Part 11 - The chain of crypto taxes

In the volatile world of crypto, there’s a good chance that some investments will become worthless. Similarly, it’s not unthinkable that important access phrases (private keys) to wallets could be lost, meaning all your value will be lost for good. And as with other industries, there will be scammers who manage to convince well-educated investors to part with private information, resulting in lost bags (any type of crypto that is held in large numbers).

HMRC view each transaction for tax, as follows:

Worthless crypto – you can make a ‘negligible value claim’ on your tax return, which essentially means you can treat the lost value as a capital loss, to be used against future capital gains of any asset. If you need to make a claim, you will need to provide certain information to HMRC. Worthless crypto might include crypto you pay for but don’t receive, but should be considered on a case by case basis.

Losing public and private keys – you will need to prove to HMRC that the keys are lost for good, or else no relief is available. If you can convince HMRC that access to your wallet is gone for good, you will be able to make a negligible value claim.

Stolen bags, scams etc – simply losing your bag or crypto to scammers is not considered to be a taxable disposal event by HMRC. This is because you are deemed to still be the owner of the asset, and you have the right to recover them. This seems a very unfair stance by HMRC, and advice should be taken as to whether or not a negligible value claim is possible.

In all instances, HMRC will require you to document the loss, and make any claims within the permitted time limits.