Crypto users forced to share account details with tax officials.

The landscape of cryptocurrency in the United Kingdom has undergone a significant transformation with the introduction of stringent new tax regulations, effective from January 1st. Individuals engaged in buying, selling, or exchanging digital assets are now mandated to disclose their account details to His Majesty’s Revenue and Customs (HMRC), marking a pivotal shift towards greater transparency and accountability in the burgeoning crypto market. This decisive move by the UK’s tax authority is specifically designed to ensure that all relevant taxes, particularly Capital Gains Tax (CGT), are accurately reported and paid on profits derived from crypto activities.

HMRC is set to implement an automated system for collecting comprehensive information from all users of cryptocurrency exchanges. These exchanges, often likened to the banks of the digital asset world, facilitate the conversion of traditional fiat currency into virtual coins and vice versa. By compelling these platforms to share detailed user data, HMRC aims to recover what it estimates to be tens of millions in unpaid tax, addressing a long-standing challenge in taxing the often-anonymous and borderless nature of crypto transactions.

This regulatory overhaul coincides with ongoing efforts by the Financial Conduct Authority (FCA), the UK’s financial watchdog, to establish a more robust regulatory framework for the entire crypto industry. The FCA’s consultation process is exploring tougher measures, including provisions to combat market manipulation and insider trading, underscoring a broader governmental push to bring digital assets under conventional financial oversight. The collective intent is to foster a more secure and legitimate environment for investors, while simultaneously closing potential loopholes for tax evasion.

The volatility and rapid growth of the cryptocurrency market have made it a challenging area for tax authorities globally. Bitcoin, frequently viewed as a bellwether for the broader crypto ecosystem, experienced considerable price swings in 2025. It surged dramatically from approximately $93,500 (£69,500) per coin at the beginning of the year, peaking near $124,500, before settling below $90,000 by year-end. Such fluctuations create significant opportunities for capital gains, which, under existing tax laws, are liable for taxation. However, as Dawn Register, a tax dispute resolution partner at accountancy firm BDO, highlights, authorities have historically encountered difficulties in effectively collecting these taxes.

"HMRC has been concerned for some time about high levels of non-compliance among crypto investors," Register explains. The inherent characteristics of cryptocurrencies – their decentralised nature, the ability to transact pseudo-anonymously, and the global reach of exchanges – have historically presented formidable obstacles for national tax bodies trying to track transactions and identify taxpayers. This has led to a perception among some crypto investors that their holdings and gains were beyond the reach of traditional tax enforcement.

The newly enacted regulations are set to drastically alter this perception, making it considerably more challenging for high-net-worth crypto investors to conceal untaxed gains. By mandating direct data sharing from crypto exchanges, tax authorities will gain unprecedented insight into user identities, transaction histories, and overall earnings. Cryptocurrency exchanges are now legally obligated to automatically provide up-to-date and accurate accounts of all their users’ financial activities and earnings to HMRC. Failure to comply with these stringent reporting requirements could result in substantial fines and other penalties for the exchanges themselves, ensuring a strong incentive for adherence.

A critical component of these new measures is the implementation of the Cryptoasset Reporting Framework (CARF). This international standard, developed by the Organisation for Economic Co-operation and Development (OECD), is being adopted by dozens of countries worldwide. CARF aims to standardise the reporting of crypto-asset transactions, much like the Common Reporting Standard (CRS) does for traditional financial assets. This global coordination will significantly enhance international cooperation among tax authorities, making it much easier to share information across borders and track crypto assets held by taxpayers in different jurisdictions. For individuals who might have considered moving their crypto assets to exchanges in other countries to avoid domestic taxation, CARF effectively closes this avenue, creating a truly global net for tax compliance.

In the UK, HMRC estimates that many thousands of crypto owners currently have outstanding tax bills. The tax body is optimistic that these new rules will generate at least £300 million in additional tax revenue over the next five years. This figure underscores the scale of the perceived tax gap within the crypto sector and the financial significance of this regulatory crackdown.

Ms. Register further cautions that anyone who realised crypto gains during the 2024-25 financial year must be prepared to file a tax return by the deadline of January 31st. A dedicated section within the self-assessment form has been introduced to facilitate the reporting of crypto-related income and capital gains. Furthermore, HMRC is actively encouraging voluntary disclosure for individuals who have undeclared tax liabilities from earlier years. "HMRC is running a disclosure facility where taxpayers can come clean on undeclared gains and unpaid tax prior to April 2024," she notes. This facility provides a window for individuals to regularise their tax affairs, potentially avoiding harsher penalties that could be imposed if non-compliance is discovered through HMRC’s enforcement efforts.

Understanding what constitutes a taxable event in crypto is crucial for compliance. Capital Gains Tax in the UK is typically triggered when:

1. Selling crypto for fiat currency: Converting Bitcoin or Ethereum into pounds sterling.
2. Exchanging one cryptocurrency for another: Trading Bitcoin for Solana, for instance. Each such exchange is treated as a disposal of one asset and an acquisition of another.
3. Using crypto to purchase goods or services: Spending crypto to buy a coffee or pay for online services.
4. Gifting crypto: While not always taxable for the giver, gifting crypto above certain thresholds can trigger CGT.

It is also important to differentiate these capital gains from other forms of crypto income, such as staking rewards or mining income, which are typically subject to Income Tax.

For UK taxpayers, the annual exempt amount for Capital Gains Tax, which allows a certain amount of gain to be realised tax-free, has been decreasing (e.g., £3,000 for the 2024-25 tax year). Gains exceeding this threshold are then taxed at either 10% or 20% depending on the individual’s income tax bracket. The necessity of meticulous record-keeping cannot be overstated. Taxpayers must maintain detailed records of every transaction, including the date of purchase, the cost basis, the date of sale, the proceeds received, and any associated exchange fees. Without such records, HMRC has the authority to make its own estimates, which are often less favourable to the taxpayer.

In parallel with these tax changes, the Financial Conduct Authority (FCA) is conducting a public consultation on its proposed crypto rules, which is open until February 12th. This consultation delves into a broad spectrum of issues, including establishing robust standards for crypto exchanges, implementing new requirements to ensure brokers act responsibly, and formulating regulations around crypto lending and borrowing. The proposed standards for exchanges could encompass requirements for robust Know Your Customer (KYC) and Anti-Money Laundering (AML) checks, operational resilience, and clear segregation of client assets. Broker responsibilities might involve suitability assessments for investors and transparent disclosure of risks. Regulation around crypto lending and borrowing seeks to address inherent risks such as platform insolvency and the lack of traditional consumer protections often found in regulated financial markets.

Commenting on the consultation last month, David Geale, the FCA’s executive director for payments and digital finance, reiterated the inevitability of regulation. "Our goal is to have a regime that protects consumers, supports innovation and promotes trust. We welcome feedback to help us finalise these rules," he stated. This reflects a balanced approach, aiming to harness the innovative potential of blockchain technology while mitigating the risks associated with an unregulated market.

The increased regulatory scrutiny and tax enforcement signify a clear message: the era of largely untracked and untaxed cryptocurrency activity is drawing to a close. While some may view these measures as an infringement on the privacy and decentralised ethos of crypto, authorities frame them as essential steps towards integrating digital assets into the mainstream financial system, ensuring fairness, consumer protection, and fiscal responsibility. The future of crypto in the UK and globally is undeniably one of increased regulation, transparency, and, crucially, taxation.