UK Tax Authority Increases Warning Letters for Crypto Investors

The UK tax authority has intensified its focus on cryptocurrency investors, doubling the number of warning letters sent to those who may be underreporting or avoiding taxes on their digital asset gains.

HM Revenue & Customs (HMRC) revealed that it sent nearly 65,000 warning letters during the 2024–25 tax year, a significant increase from 27,700 the previous year, as reported by the Financial Times, based on a Freedom of Information request.

These letters, referred to as ‘nudge letters’, aim to encourage investors to voluntarily amend their tax submissions before formal audits begin. This escalation highlights HMRC’s commitment to enhancing compliance with crypto-related tax obligations. In total, the agency has dispatched over 100,000 such letters in the past four years, with activity surging alongside the rising popularity and prices of cryptocurrencies.

Example of a previous nudge letter sent in 2024. Source: kc-usercontent

Seven Million Adults in the UK Own Crypto

The Financial Conduct Authority estimates that approximately seven million adults in the UK now own cryptocurrencies, a rise from about 10% (5 million) in 2022 and 4.4% (2.2 million) in 2021, showcasing the growing interest in the asset class.

“The tax rules surrounding crypto are quite complex, and many individuals trading in crypto do not realize that even exchanges between different coins can trigger capital gains tax,” stated Neela Chauhan, a partner at UHY Hacker Young.

HMRC’s Capacity for Market Monitoring has greatly improved, thanks to direct access to transaction data from major crypto exchanges. Starting in 2026, the agency will also obtain automatic access to global exchange data under the Organisation for Economic Co-operation and Development’s Crypto-Assets Reporting Framework (CARF).

US Legislation on Crypto Tax Exemptions

In the US, senators are currently evaluating updates to crypto tax laws, including the proposal to exempt small transactions from taxation and to clarify tax treatment of staking rewards. During a recent Senate Finance Committee hearing, lawmakers debated whether typical crypto payments should incur capital gains tax and how to classify income generated from staking services. Lawrence Zlatkin, Vice President of Tax at Coinbase, urged Congress to establish a de minimis exemption for transactions under $300.

In parallel, South Korea’s National Tax Service has also escalated its efforts to combat crypto tax evasion, warning that even assets in cold wallets may be seized if found to be related to unpaid taxes.

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