Theft and fraud: Crypto-assets and capital losses

TaxTalk - October 2022

read timeRead time: 3 mins

Recent analysis suggests Blockchain scammers took home a record $14 billion in 2021 alone. As the crypto-asset market continues to grow, it is inevitable that losses due to theft and fraud will also increase. Andrew McCready explores how such losses by an individual are treated for UK tax purposes.

The crypto-asset market is well known for its volatility and lack of regulation. Since the advent of Bitcoin in 2009, new crypto-assets have been appearing at an exponential rate, providing opportunistic fraudsters a chance to create new scams. As with any asset, if you are investing in cryptoassets, there is a risk you could fall victim to theft and fraud.

Theft of private and public keys

Crypto-assets will usually come with a private or public key that allow access to your assets. A public key allows an individual to receive crypto transactions, while a private key grants an individual physical ownership. The key may be held on a computer or written down so if it is stolen, the individual would be unable to access their assets.

The theft of a key (especially a private key), in practical terms, amounts to a loss of the underlying asset as it will be impossible for the owner to access without. However, HMRC does not consider the theft of a key to be a capital loss for tax purposes. Strictly speaking, the asset and the corresponding key remain in existence, albeit with the beneficial owner unable to access it.

If, however, the individual can prove that there is no prospect of recovering the stolen key or accessing the underlying asset, HMRC may accept a negligible value claim in order to realise a capital loss. A negligible value claim treats the crypto-assets as being disposed of and immediately re-acquired for the amount stated in the claim (nil, if the crypto-asset is inaccessible). Whether or not an asset would be deemed irrecoverable depends on the particular circumstances.

If HMRC believes there is a possibility that the key may be recovered, or of accessing the underlying crypto-assets, their view is that it would not be possible to make a negligible value claim.

Loss due to fraud

Some investors have fallen victim to ‘scam coins’ which are created by fraudsters and allow individuals to invest in, but not dispose of, the coin. If the coin loses significant value, the investors cannot dispose of the coin to crystallise a capital loss. In these circumstances, the investor would need to make a negligible value claim. However, HMRC may argue that the holding was always of negligible value so there would be no available loss.

Other investors have been caught out by ‘scam wallets’ to which they transfer their existing coins, only to discover their wallets emptied by fraudsters. HMRC does not consider theft to be a disposal, as the individual still owns the stolen asset and has the right to recover it. If you find yourself in this situation, you may be able to make a negligible value claim if HMRC agree that your holding has become worthless. However, whilst you may no longer have access to, or be able to dispose of the asset, HMRC may consider that it still has some value on paper.

Alternatively, if you were to purchase a crypto-asset but not receive it, HMRC would be unlikely to treat this as a capital loss as you never acquired the asset for tax purposes.


HMRC does not consider losses due to theft and fraud to be a valid capital loss claim. Unless investors who have lost out to theft and fraud are able to convince HMRC that their asset has become of negligible value, they will likely be out of pocket. 

Please contact Andrew McCready in our Personal Tax team, if you have any queries in relation to this article.