Capital Loss Claims

Negligible value claims

HMRC confirms at CRYPTO22500 that individuals can crystallise (‘bank’) capital losses for cryptoasset tokens that they still own, if they become worthless or of ‘negligible value’ while owned.

A negligible value claim treats the tokens as being disposed of and immediately re-acquired at an amount stated in the claim. As tokens are pooled, the negligible value claim needs to be made in respect of the whole section 104 pool, not the individual tokens.

A negligible value claim must state:

• cryptoasset token which is the subject of the claim

• amount the token should be treated as disposed of (which may be £nil)

• date that the token should be treated as being disposed of and immediately re-acquired

You have to demonstrate that the asset had value and has later become of negligible value while you own it. This negligible value claim and the loss resulting from the claim is to be reported in a Tax Return.

You are deemed to dispose of the cryptoasset for its current market value, therefore resulting in a capital loss if the allowable costs are more than this. This loss can be used to reduce capital gains in the same tax year, or be carried forwards to reduce future capital gains.

An example of this could be a cryptoasset that the developers have stopped working on and is seemingly a “dead project”.

Losing private keys

Losing the private key to a wallet containing your cryptoassets cannot be treated as a disposal for capital gains tax purposes. The private key still exists as part of the cryptography, albeit it is not known to the owner any more. Similarly the tokens will still exist in the distributed ledger.

However, HMRC confirm at CRYPTO22400 that if the individual can show that there is no prospect of recovering the cryptoassets, they can file a negligible value claim in their Tax Return, to claim a capital loss for these cryptoassets.

Being defrauded

Being the victim of theft resulting in the loss of cryptoassets is also not considered a disposal for CGT purposes, as the individual still owns the stolen asset and has a right to recover it.

If the individual can prove they did hold the cryptoasset tokens at some point (ie they received the tokens they contracted for), yet the tokens have become worthless, they can file a negligible value claim and claim a capital loss on their Tax Return. If the tokens were worthless when acquired, then a negligible value claim won’t be allowed.

However, those who did not receive the cryptoasset tokens that they paid for may not be able to claim a capital loss according to the HMRC guidance at CRYPTO22450.