Does swapping one cryptocurrency for another really trigger a tax bill?

Yes, and the BBC report on HMRC's letters says so explicitly: investors could face fines or prosecution if they fail to declare profits they made from selling, even if they exchange one cryptocurrency for another. The reason is that Capital Gains Tax is charged on a disposal, and a disposal does not mean converting to sterling. It means parting with the asset. Swapping bitcoin for another token is a disposal of the bitcoin at its market value on the day, and the gain is measured from what you originally paid. This is the single most expensive misunderstanding in the whole subject, because it produces a tax bill in a year when no money reached your bank account.

I have received one of these letters. Does it mean HMRC has caught me?

Not necessarily. HMRC told the BBC that it regularly sends letters to educate, remind or prompt customers to review their tax affairs, including customers who use crypto assets. These are nudge letters. They go out on the basis of data HMRC already holds, and they are sent in volume rather than following an individual enquiry. What the letter does change is your position if you ignore it. Once you have been prompted and do nothing, it becomes much harder to argue you took reasonable care, and the penalty range for a prompted disclosure is worse than for one you volunteer. Work out the position and respond either way.

What happens if my tokens have fallen in value since the gain arose?

The tax still stands, and this is the part that catches people out. Capital Gains Tax attaches to the year the disposal happened, not to what the replacement asset is worth now. GOV.UK's rules on losses are clear that a loss is deducted from gains made in the same tax year, and anything unused is carried forward to a future year. There is no carry-back. So a gain crystallised in October 2025 sits in the 2025-26 tax year and is payable by 31 January 2027, while a fall in value realised in 2026-27 can only shelter future gains. Selling now does not undo last year's bill.

I made almost no profit but traded a lot. Do I still have to report it?

Possibly, and this is the trap for people who assume a small profit means no paperwork. GOV.UK sets out a second test alongside the gains test: if you are registered for Self Assessment, you have to report your disposals when the total amount you sold the assets for was more than £50,000, for 2023-24 onwards. That threshold looks at gross proceeds, not profit. Someone who moves a £6,000 holding between tokens nine times over a year has £54,000 of disposal proceeds even if the net gain is a few hundred pounds. The reporting obligation is triggered by the churn, not by the profit.

How far back can HMRC go, and what does being late actually cost?

HMRC's own cryptoasset disclosure guidance sets three windows, and which one applies depends on behaviour rather than on the amount. If you took reasonable care and still underpaid, it is four years. If you did not take enough care, it is six. If you deliberately misled HMRC, it is twenty. On top of the tax there is interest, charged daily from the original due date, and the late payment rate has been 7.75% since 9 January 2026. On an £8,400 liability that is £651 a year, running from the 31 January the tax was originally due. Penalties are then calculated separately on top.

HMRC sent 81,000 crypto warning letters last year. The tax lands on the swap, not the cash-out.

Reacting to: 81,000 warning letters sent to crypto holders in HMRC tax crackdown (BBC News) →

This has been reported as a story about crypto investors, and I think that framing gets it wrong. The people I expect to be opening these letters are not day traders with six screens. They are sole traders, contractors and company directors who put a few thousand pounds into bitcoin some years ago, moved it around once or twice when it was going well, and have never once thought of it as something that belongs on a tax return. They are right that they never took any money out. They are wrong that this means nothing is due.

Here is my view, plainly. The tax event in crypto is almost never the moment people think it is. It is not the day the money hits your current account. It is the day you part with the asset — including the day you swap one token for another, which is the exact thing people do when a coin has run up and they want to rotate into something else. That single misunderstanding is what turns an ordinary holding into an unfunded tax bill, and it is why a fall in the market since then makes the situation worse rather than better.

What HMRC actually did

In the 2025-26 financial year, HMRC sent 81,172 warning letters, emails and text messages to crypto investors it suspects may have underpaid tax. The number comes from a Freedom of Information request made by accountancy firm UHY Hacker Young and seen by the BBC, and it is almost triple the figure for 2024. HMRC's own response was measured: a spokesperson said the department is committed to helping people pay the right amount of tax, that the vast majority do, and that it regularly sends letters to educate, remind or prompt customers to review their tax affairs.

The reason for the volume is timing. Bitcoin rose from around £14,000 in December 2022 to about £90,000 in October 2025, and HMRC believes a large amount of capital gains from that run has never been declared. The price has since fallen to around £48,000, which does nothing at all to the tax on the gains already realised.

Two changes are coming that make this less of a nudge campaign and more of a data exercise. From March 2027, crypto platforms based in dozens of countries outside the UK will be obliged to share information about their customers with tax authorities. HMRC has estimated the change will raise up to £315m by April 2030. Neela Chauhan, the UHY Hacker Young partner behind the FOI, put it bluntly: once HMRC has that data, investigations into crypto investors will be like “shooting fish in a barrel”. She also made the point that a lot of these traders are young, have had little previous contact with HMRC, and assume the department cannot see what they are doing.

The rule almost everybody gets wrong

Capital Gains Tax is charged on a disposal. A disposal is not the same thing as a withdrawal. Selling for pounds is a disposal, obviously — but so is exchanging one cryptocurrency for another, and the BBC's report states that directly: investors could face fines or prosecution if they fail to declare profits they made from selling, even if they exchange one cryptocurrency for another.

So the gain is calculated at the moment of the swap, using the sterling value of what you gave up on that day, measured against what you originally paid for it. No money needs to move for the liability to exist. That is a genuinely counter-intuitive rule, and it is the reason people who feel entirely honest end up on the wrong side of it.

Worked example: the £7,000 stake that leaves an £8,400 bill

Here is what that looks like in practice. The figures below are illustrative, but the prices are the ones in the BBC report and the tax rates are the published 2026-27 rates on GOV.UK today.

Say a self-employed owner put £7,000 into bitcoin in December 2022, when it was around £14,000 a coin — so half a coin. In October 2025, with bitcoin at about £90,000, they moved the whole holding into a different token because they thought that one had further to run. They never touched sterling.

Disposal proceeds: 0.5 × £90,000 = £45,000
Original cost: £7,000
Gain: £38,000
Less the annual exempt amount for 2026-27, which is £3,000: taxable gain £35,000

Now the rate. From 6 April 2026 the main rates are 18% within the basic rate band and 24% above it, and the basic rate band is £37,700. Two owners with identical gains pay different amounts depending on their income:

Owner A, taxable income £20,000. There is £17,700 of basic-rate band left, so £17,700 is taxed at 18% (£3,186) and the remaining £17,300 at 24% (£4,152). Total: £7,338.
Owner B, already a higher-rate taxpayer. The whole £35,000 is taxed at 24%. Total: £8,400.

Owner B's bill is 22% of the gain. Not frightening in isolation. The problem is what it sits against.

The second sting: the loss cannot go backwards

That gain arose in October 2025, which falls in the 2025-26 tax year. The tax is payable by 31 January 2027. Meanwhile bitcoin has fallen from around £90,000 to around £48,000 — a fall of roughly 47%. If the replacement token has moved broadly in line with it, the £45,000 of value they were holding is now worth in the region of £24,000.

So the £8,400 bill now represents 35% of what is left, on a holding that has never produced a penny of cash. And selling now does not fix it. GOV.UK's rules on capital losses are explicit that a loss is set against gains made in the same tax year, with anything unused carried forward to a future year. There is no carry-back. A loss realised in 2026-27 cannot be used to reduce a gain that arose in 2025-26. The bill from the good year has to be paid out of something else entirely.

The £50,000 trap for people who made almost nothing

There is a second reporting test that has nothing to do with profit. GOV.UK states that if you are registered for Self Assessment, you must report your disposals when the total amount you sold the assets for was more than £50,000, for 2023-24 onwards — even where the gain is below the annual allowance and no tax is due.

That is a gross proceeds test, and crypto churns. Someone moving a £6,000 holding between tokens nine times across a year has £54,000 of disposal proceeds and a reporting obligation, on a net gain that might be a few hundred pounds. The activity creates the paperwork, not the profit.

What it costs to leave it

HMRC's cryptoasset disclosure guidance sets the window by behaviour, not by amount: four years if you took reasonable care and still got it wrong, six years if you did not take enough care, and twenty years if you deliberately misled HMRC. Interest runs daily from the original due date, and the late payment rate has been 7.75% since 9 January 2026. On the £8,400 above, that is £651 a year, from the 31 January the tax was first due. Penalties are then worked out separately on top of the tax and the interest.

The reason to deal with it now rather than after a letter turns into an enquiry is simply that a disclosure you volunteer is treated more generously than one HMRC has to prompt. Once a nudge letter has landed in your name and been ignored, the argument that you took reasonable care gets considerably harder to make.

What this means for you, depending on where you sit

You bought and still hold, and have never sold or swapped. Nothing has happened for tax purposes and nothing is due. Keep your acquisition records — dates, amounts, sterling cost — because you will need them the day you do dispose, and exchange histories have a habit of disappearing when a platform does.

You swapped or sold in 2025-26 and have not told HMRC. You are the group this campaign is aimed at. Registration for Self Assessment for that year closes on 5 October 2026, which is six weeks away, and the tax is due 31 January 2027. There is time to do this properly and cheaply.

You disposed in an earlier year and did nothing. Interest is already running. The disclosure route exists precisely for this and is far better than waiting.

Your company holds the tokens, not you. Different regime entirely — corporate gains sit inside the corporation tax computation rather than Capital Gains Tax, and the annual exempt amount does not apply. Worth a proper conversation rather than a rule of thumb.

Three things worth doing this week

Export your full transaction history from every exchange and wallet you have used. Do it before you need it. You want dates, quantities, and the sterling value at the time of each transaction, including swaps. This is the part that costs money to reconstruct later, and it is the part platforms lose.
Put your numbers through the arithmetic. Our capital gains calculator will give you the shape of the bill in a couple of minutes, and our complete guide to Self Assessment covers what goes where on the return.
If you owe for an earlier year, use the proper route. HMRC runs a dedicated service at tell HMRC about unpaid tax on cryptoassets. If the gain is in 2025-26 and you are not yet in Self Assessment, register for Self Assessment before 5 October 2026 instead.

What is still uncertain, and when you will know

The reporting regime starts in March 2027. That is the date platforms outside the UK begin sharing customer data, so the practical position for the next eighteen months is that HMRC is working from what it can already see. After that date the picture changes materially, and disclosures made before it will be voluntary ones rather than prompted ones.

The £315m estimate runs to April 2030. It is HMRC's own projection of what the new data will raise, not a target for letters. Whether the yield arrives through voluntary disclosures or through enquiries is the thing that will determine how heavy-handed this gets.

Rates and the annual exempt amount are set until they are not. The £3,000 exemption and the 18% and 24% rates above are the published figures for 2026-27. The Budget is where those get revisited, and the direction of travel on the exemption over the last few years has been downwards.

Where we come into this

The awkward thing about crypto in a small business context is that it usually sits outside everything else. It is not in the bookkeeping, it is not in the accounts, and it does not appear in any conversation until a letter arrives. That is exactly how a £7,000 punt turns into an £8,400 problem with interest attached.

Our tax planning work is where personal disposals get looked at alongside how you pay yourself, because as the two owners above show, the same gain costs meaningfully different amounts depending on your income in the year you realise it — and that is something you can plan, if you plan it before the disposal rather than after. If you are a small business owner or a sole trader holding something you have never mentioned to your accountant, mention it. It is a much smaller conversation now than it will be in March 2027.