The HM Revenue & Customs (HMRC) has stepped up its action to make cryptocurrency investors pay taxes. The tax department sent out approximately 65,000 warning letters to persons believed to be underreporting their taxes or to evade taxation on crypto gains in the 202425 tax year. This number translates to growth of over 130 percent over the 27,700 letters dispatched last year.

The official letters, called nudge letters, try to convince taxpayers to rectify possible mistakes or oversights in their returns before the initiation of the official investigations. The Freedom of Information request conducted by UHY Hacker Young has revealed that in the last four years, the use of such letters by HMRC has increased significantly. In 2021-2025, the agency issued over 100,000 such notices, which illustrate its growing interest in the digital asset industry.

According to Neela Chauhan, a partner at UHY Hacker Young, most crypto investors are unaware that buying, selling, or gifting digital assets can result in taxes. She explained that even exchanging one taxable token for another is subject to taxation under UK rules.

Greater Availability of Crypto Data Enhances Supervision

Major cryptocurrency exchanges now provide detailed data on transactions to HMRC, and it is now able to identify non-compliant taxpayers better. This data enables the tax agency to cross-check reported gains and on-chain transactions and exchanges. The higher data availability is indicative of the global drive towards making digital assets more transparent in terms of taxation.

From 2026, the UK will be part of the Organization for Economic Co-operation and Development (OECD) Crypto-Assets Reporting Framework (CARF). This international program will force crypto exchanges and digital asset service providers to directly submit user data and transaction data to national tax agencies. The system that over 70 jurisdictions have adopted seeks to make it hard to evade taxes using crypto transactions.

Tax experts have advised cryptocurrency investors to keep comprehensive documentation of their crypto transactions. Proper documentation assists in compliance and loss claims due to losses that may be used to offset taxable gains. Often, those individuals may receive fewer penalties when making voluntary disclosures of undeclared gains before an investigation.

Also Read: India Sends Over 44,000 Notices to Crypto Traders Amid Growing Tax Evasion Concerns

Complicated Tax Regulations and Market Growth

In the UK, most crypto disposals receive the treatment of a capital transaction, and therefore, they are subject to Capital Gains Tax (CGT). Other operations like mining, staking, airdrops, and many others are typically considered income and taxed under different regulations. The existing CGT exemption level stands at 3,000, and the taxes imposed on disposals range between 18 and 24% based on the level of income.

According to the cryptocurrency regulation estimates of the Financial Conduct Authority (FCA), it is estimated that seven million adults in the UK currently possess digital assets, a rise from five million in 2022. The increase in popularity, coupled with a growth in the price of crypto, has made HMRC increase its efforts in monitoring.

Concurrently, the UK financial regulator recently removed a ban on crypto-backed exchange-traded notes (ETNs) for retail investors. The policy change may bring on more players in the crypto market, highlighting the need to have tax reporting and compliance in the booming industry.