The UK’s approach to taxing digital assets is causing increasing friction among crypto users. The main issue stems from how the tax authorities, HMRC, classifies encryption and imposes what many consider to be a troubling requirement for transaction logging and disclosure of personal data.
On the Beincrypto podcast, Bitcoin Policy UK CEO Susie Violet Ward warned that the country’s current tax and regulatory policies seriously threaten the crypto industry. As she saw, without urgent reforms, these rules risk turning the growth of the industry permanently in the UK.
Cryptocurrency challenges
In the UK, cryptocurrency users have expressed serious concerns about the regulatory environment, citing issues such as overregulation, banking, and clear general lack. At the heart of these issues is how the country’s tax authorities see and treat digital assets, many arguing that it will hinder the growth of the industry.
The challenges facing UK crypto users range from inappropriate classification of digital assets and strict caps of allowances for critical privacy concerns in capital gains.
Bitcoin vs. “crypto” split
For many supporters, the most fundamental flaw in the UK’s approach is the lack of a clear distinction between Bitcoin and thousands of other crypto assets.
The Financial Conduct Authority (FCA) has a token taxonomy, which broadly classifies Bitcoin as a “exchange token” and applies a blanket-regulated lens to all cryptocurrencies.
Ward argued that this all-around approach was false because Bitcoin and other crypto projects are fundamentally different.
“One is a completely decentralized protocol that accounts for 60% of the overall crypto industry, while the other protocols are technology and VC companies. They are not the same remotely. However, they are given the same risk profile under the FCA and cannot cause confusion.
The fundamental cutting in classification has a very realistic impact on how the government handles all tax transactions.
“Swap” Issues and Tracking Burden
For UK crypto investors, the major tax issues stem from the way tax authorities classify digital assets. HMRC, the UK tax agency, does not consider cryptocurrency as money. Instead, they treat them as assets or assets such as stocks and gems.
This important distinction has significant consequences. Every time a user removes an asset, it is considered a disposal that can cause a tax event. This event is particularly costly in cipher swaps that involve swapping one cryptocurrency for another.
Users may view this as a single, simple transaction, but HMRC sees it as two separate, taxable events. One effectively “sell” one asset and “buy” new asset.
Even if you don’t have cash to change your hands, you will need to use that value in the UK pound at the moment to calculate the capital gains or losses of the assets you are disposing of. The rule also requires that you maintain a detailed log of all transactions that are made by active traders.
“If all trades and swaps cause taxable events, it makes record-keeping very difficult. So trying to resolve your tax bill about it can be very burdensome, expensive and cumbersome,” Ward told Beincrypto.
Meanwhile, tax-free earnings allowances for UK crypto investors continue to shrink, requiring taxes to be paid on smaller amounts of profits than the previous year.
Reduced capital gains allowance
Beyond the complexity of Crypto SAPS, UK tax policy is creating another hurdle for investors. Capital gains tax (CGT) decreases. The term refers to the person’s interests by selling assets containing crypto before paying taxes.
In a move that attracted strong criticism from Crypto supporters, the UK government systematically cut the allowance for three years. It went from ÂŁ12,300 in 2022 to ÂŁ6,000 in 2023 to ÂŁ3,000 a year later.
Ward argued that the cuts were a significant hindrance to those considering investing. From an economic standpoint, she believes that policy is counterproductive.
“The more tax you levie, the more money you get taxes. In reality, there’s less tax. Once you reach a certain amount, people start to leave. They start to want to protect their wealth.
Ward added that the UK is already seeing wealthy individuals, and successful investors are relocating to more tax-friendly jurisdictions like the UAE, the US and Singapore.
Ultimately, such tax cuts create a flawed economic strategy that could put a financial burden on investors large and small, and ultimately undermine the UK’s long-term financial health.
Recent changes to the UK tax authorities’ approach to crypto taxes have raised major concerns about data privacy and security.
Data privacy, monitoring, and “honeypot”
Starting in January 2026, UK crypto platforms are needed to share user data with HMRC, a worrying shift among many in the crypto community due to serious privacy concerns.
The new requirement is part of the adoption of the UK’s CryptoAsset Reporting Framework (CARF), a global standard developed by the Organization for Economic Co-operation and Development (OECD) to combat tax evasion.
Previously, the UK’s approach to crypto tax compliance relied primarily on voluntary disclosures from individuals. Under the new CARF framework, reporting responsibility will shift to the platform itself, providing a comprehensive stream of transactional data directly to the HMRC.
Next year, Crypto service providers will need to collect and report comprehensive identity and transaction data for users. Details include your name, date of birth, address and tax identification number. This is used by HMRC to cross-reference with self-assessment tax returns and to identify potential non-compliances.
“(The users) should be really scary. It was only a few months ago that HMRC hacked data from 100,000 users that could be purchased on the dark web,” Ward said, referring to the phishing attack HMRC he experienced in June 2025.
In that case, the scammer fraudulently charged ÂŁ47 million in tax repayments from HMRC. I accomplished this by using my personal data to create or hijack around 100,000 HMRC online accounts.
According to Ward, this concern is more than just theoretical.
“This will be a harm that comes in the real world. We are already beginning to see… temptation, fingers are blocked. This actually causes physical harm. They want to know everything about us, but they do nothing to really protect our data.”
The CARF framework is not just about existing rules that increase data collection among crypto taxpayers.
FATF Travel Rules: False effort?
To keep the crypto sector in line with traditional finances, the UK government implemented the Crypto Enterprises Financial Conduct Task Force (FATF) travel rules in September 2023. The move directly responded to global standards set by the FATF, an international organisation that sets anti-money laundering and counterterrorist finance measures.
The rules require these businesses to collect and share personal information about the senders and recipients of cryptographic transfers. The motivation came after the FATF identified an increased risk in the crypto sector due to its pseudonymity nature and ease of cross-border transfer.
UK compliance with this standard was intended to demonstrate its commitment to global norms. Unlike some countries, the UK does not have a minimum transaction threshold. This means that the rules apply to all cryptographic transfers regardless of their value.
The FAFT travel rules, originally established for wire transfers, do not rule out these risks in traditional banking systems. This rule adds a layer of transparency, but criminals continue to find ways to move illegal funds, indicating that it is not a complete solution.
Ward challenged the logic of applying this rule to cryptographic applications, arguing that its effectiveness in traditional finance was questionable.
“We know that illegal activities are happening in traditional systems and the FATF hasn’t stopped there. If they can’t protect us and actually bring about something net positive like industry, finance, money laundering, illegal activities, etc., why should you do it to yourself?” the word told beincrypto.
With so many risks at stake, the UK’s crypto tax policy debate is entering an important new phase.
Calling for change
Ward’s problems stem from a regulatory framework and are widely viewed as not suited to the unique properties of decentralized technologies. These policies are more than just bureaucratic hurdles. In the view of many crypto advocates, they are actively deterring investment, innovation and talent from the UK.
In the meantime, the number of crypto users in the UK continues to grow. Recent data from the FCA shows that around 12% of UK adults currently own or own cryptography, up from just 4% in 2021.
As adoptions continue to increase, the conversation surrounding how cryptography is taxed will undoubtedly be strengthened.
Disclaimer
Following Trust Project guidelines, this feature article presents the opinions and perspectives of industry experts or individuals. Although Beincrypto is dedicated to transparent reporting, the views expressed in this article do not necessarily reflect the views of Beincrypto or its staff. Readers should independently verify the information and consult with experts before making decisions based on this content. Please note that our terms and conditions, privacy policy and disclaimer have been updated.
