Qualitative research with Cryptoasset investors and industry participants: enhancing HMRC’s insight into to the cryptoassets industry and investors’ interactions with the tax system

Question 1

1. Glossary

Accepted Answer

1.1 The following table lists technical terms and their definitions for the purpose of this report.

1. Term	Definition
Cryptoasset Reporting Framework (CARF)	A framework for the reporting and automatic exchange of tax-relevant information on transactions in cryptoassets. At the time of the research (2024), the CARF was not yet fully implemented in the UK. Obligations relevant to the CARF begin on 1 January 2026.
Cryptoasset Service Provider (CASP)	Entities or individuals that, as a business, act for, or on behalf of, another person to facilitate the exchange of cryptoassets.
Centralised exchange	A marketplace that connects buyers and sellers and is not a decentralised exchange. It is managed by its operators in a centralised manner
Capital Gains Tax (CGT)	A tax applied on the chargeable gains arising from the disposal of a chargeable asset that has increased in value since it was first acquired.
Cryptoasset	Cryptoassets, for example bitcoin or non-fungible tokens, are digital representations of value that use a cryptographically secured distributed ledger or similar technology to validate and secure transactions.
Decentralised exchange	A segment of the cryptoasset ecosystem, which utilises blockchain networks and smart contract technology to provide a range of cryptoasset activities without an intermediary.
Distributed Ledger Technology (DLT)	A type of technology that enables the sharing and updating of records in a distributed way. A Blockchain is a specific way of implementing this technology.
Exchange-Traded Fund (ETF)	A form of Collective Investment Scheme and contains a pool of investments derived from the contributions of investors.
Fiat currency	A currency that is issued by a government or a central bank.
HMRC	His Majesty’s Revenue and Customs — a government department which is the UK’s tax, payments and customs authority.
High Net Worth Individual (HNWI)	Individuals who have an annual income of £200,000 or more, or assets equal to, or above, £2 million.
Mining	The process of gaining cryptoassets by solving cryptographic equations with the use of computers.
Non-HNWI	An individual who is not a High Net Worth Individual. For the purpose of this research, this is defined as an individual who has an annual income lower than £200,000, and holds certain net assets of less than £2 million.
Private key	A private key is a randomly generated alphanumeric string that is used to authorise transactions involving cryptoassets held at associated public address.
Staking	A consensus mechanism used in blockchain technology that involves locking up cryptoasset holdings to support the network validating transactions.
Trade/Trading	For the purpose of this report, trade/trading should not be interpreted as trade/trading for tax purposes. Instead, trade/trading should be interpreted as its common meaning of buying and selling, in this case, cryptoassets.
Wallet	A user interface where a private key is stored.
Yield farming	Typically refers to a strategy of moving cryptoassets into different protocols (such as liquidity pools, lending or staking) to maximise returns. It often involves shifting cryptoassets around and compounding rewards.

Question 2

2. Executive Summary

Accepted Answer

2.1 Introduction and methodology

HM Revenue and Customs (HMRC) commissioned Ipsos to undertake qualitative research into the UK cryptoasset market. The aim of this research was to provide HMRC with additional insights into the cryptoasset industry.

For the purposes of this study, Ipsos conducted 53 qualitative interviews between October 2024 and January 2025 with individual cryptoasset investors and cryptoasset service providers.

The specific objectives were to:

understand taxpayers’ use, attitudes and behaviours towards cryptoassets, including how market conditions impact those attitudes and behaviours
understand levels of awareness, understanding and attitudes towards cryptoasset related tax obligations
provide insight into the operation and business models of cryptoasset service providers, with respect to understanding the complexity and challenges faced by those providers

This study builds on previous quantitative research which explored cryptoasset ownership in the UK conducted in 2021 and published by HMRC in July 2022, which can be accessed on the following hyperlink: Research report on individuals holding cryptoassets — uptake and understanding

The findings presented in this report are based on qualitative research methods and are intended to provide in-depth insights into participants’ experiences and perspectives. The sample size and selection methods used in this study do not allow for quantitative analysis or generalisation of results across the population of interest. Readers are advised to interpret the findings within the context of qualitative research and consider them as illustrative rather than representative.

2.2 Key findings

Findings in this report are based on interviewees’ stated opinions between October 2024 and January 2025 and are not necessarily reflective of the views held by HMRC.

Trends in cryptoasset investment

High-Net-Worth Individuals (HNWIs) engaged in two primary investment behaviours: ‘buy and hold’ for medium and long-term investment, and ‘active trading’ for short-term income generation. Investors chose to invest and trade in cryptoassets that aligned with their personal goals and risk tolerance. For example, if they had low risk tolerance, they invested in cryptoassets that they perceived as lower risk. If their investment goal was to make money in the short term, they invested in cryptoassets that they thought would rapidly increase in price.

Investors reported to primarily use centralised exchanges for buying and selling cryptoassets and only chose exchanges they believed were secure. They reported a preference for centralised exchanges as they perceived them to have higher levels of security and regulatory accountability than decentralised exchanges.

Investors acknowledged the ideological appeal of decentralised exchanges, preferring as little third-party involvement as possible. However, they often found decentralised exchanges to be less user-friendly and to have higher levels of potential risk associated with them.

For advice on investment decisions, they did not expect investment or taxation advice from CASPs, instead they relied on their own knowledge of different assets, including assets other than cryptoassets, their experience of what has worked for investment in the past, and peer networks.

HNWIs generally followed their established investment strategies, adjusting them only slightly in response to external factors. Non-HNWIs typically adopted a buy and hold approach, choosing to invest in cryptoassets that had been around for a long time or that they personally thought were stable cryptoassets. Security breaches in exchanges were a significant concern for both kinds of investors, leading them to prioritise security as the main factor when choosing platforms and diversify their holdings across multiple exchanges to reduce this risk.

Both investors and CASPs anticipated cryptoassets becoming more mainstream, with increased participation from both experienced and less experienced investors. They expected regulatory changes to accompany this growth, with a particular emphasis on investor protection and tax compliance.

Tax: Attitudes, awareness, and understanding

HNWIs expressed a desire to be tax compliant and accepted the tax liability associated with cryptoasset activities. They demonstrated high levels of awareness of their tax obligations. This included the type of tax they were liable for and the applicable thresholds.

They also noted that HMRC guidance on taxation obligations associated with cryptoassets had improved in recent years. While HNWIs understood the principles of cryptoasset taxation, those who invested in multiple assets and made trades frequently found the practical application to be complex.

Investors reported that calculating individual profits from numerous trades, especially across multiple cryptoassets was challenging. Investors sought clarity on the tax treatment of specific activities such as yield farming and coin-to-coin exchanges. Some investors found this clarity online from published HMRC guidance and others expressed a desire for even more detail on exactly how to define and treat any gains made from these activities.

Investors relied on third-party software to calculate their tax liability but expressed concerns about its reliability and compatibility with varying trading report formats. They expressed a desire for HMRC-approved software to standardise taxable outputs and provide greater assurance.

Investors typically used their general accountants for tax reporting. They noticed a gradual but growing increase in these accountants’ levels of cryptoasset knowledge and understanding. Specialist cryptoasset accountants were not commonly used. Investors explained that they expected accountants who specialised in cryptoassets to become more common in the future as demand for this service grew and knowledge among accountants grew.

Non-HNWIs typically differed from HNWIs in their understanding of tax liability associated with cryptoasset activities. They had lower levels of awareness, with some not aware that cryptoasset activity was liable for any tax and others who assumed that it could be if they made gains above a certain amount, but did not always know further details. In relevant cases, they correctly assumed they were not making high enough gains from their trades to be taxable.

This assumption was based on their understanding of how gains from trading stocks and shares were taxed, rather than due to knowledge specifically about cryptoassets. They were aware there was a threshold of gains over which they would need to pay CGT on, but they did not know what the level was other than that it was much higher than they ever expected to be relevant to them.

Cryptoasset Service Providers

Participating CASPs primarily operated as centralised exchanges, offering services that included facilitating the buying and selling of cryptoassets alongside keeping custody of cryptoassets. Some provided additional services such as staking and business-to-business trading. Exchange fees were the primary revenue source for CASPs, and their expenses were largely driven by regulatory compliance, with costs associated with adhering to and managing these expected to rise further.

While the UK was considered an attractive jurisdiction due to highly regarded FCA regulation, its cryptoasset market was viewed as less established than others. A main example drawn was that the UK has more limitations on permitted activities than other countries.

CASPs predicted the mainstream adoption of cryptoassets, leading to a wider investor base and new use cases. They anticipated increased regulation, particularly around investor protection and tax compliance.

CASPs were preparing for the implementation of the Cryptoasset Reporting Framework (CARF), acknowledging its role in addressing tax non-compliance. They welcomed the clarity it provided for investors and CASPs alike, though expressed concerns about potential tax enforcement responsibilities.

CASPs understood their own tax obligations as businesses but reported that they refrained from providing tax advice to customers, citing concerns about being liable for any errors made by investors. They saw their role as providing transaction information to facilitate customers to conduct their own tax reporting.

Conclusion

Overall, the research highlights the current attitudes and behaviours of cryptoasset industry participants, and the complexities associated with cryptoasset taxation perceived by investors. The findings suggest a need for continued clarity and guidance from relevant regulatory bodies and HMRC to support both investors and CASPs in navigating the evolving regulatory landscape and fulfilling their tax obligations.

Question 3

3. Introduction

Accepted Answer

This report summarises findings from exploratory qualitative research into the cryptoasset industry in the UK. The aim of the research was to build on HMRC’s understanding of the UK’s cryptoasset industry. This includes providing up-to-date insights on the perceptions, attitudes, behaviours, and taxation considerations of cryptoasset service providers (CASPs) and individuals who invest in cryptoassets.

Findings in this report are based on interviewees’ stated opinions and are not necessarily reflective of the views held by HMRC.

The research was commissioned by HMRC and was undertaken by Ipsos between October 2024 and January 2025.

The specific objectives of the research were to:

further understand taxpayers’ use of cryptoassets
further understand the landscape of cryptoasset investors, including any difference between HNWIs and non-HNWIs
understand how market events and changes to market conditions have impacted attitudes towards cryptoassets
further understand awareness and understanding of tax obligations related to cryptoassets
provide insight into the operation and business models of CASPs in the UK
further understand the complexity and challenges faced by CASPs in the UK

3.1 Project context, aims and research questions

This study built on previous research published in 2022 (which can be found using this link: Research report on individuals holding cryptoassets - uptake and understanding) that explored the prevalence and demographic profiles of cryptoasset ownership. The overarching aim of this research was to provide HMRC with additional insights into the cryptoasset industry to help to inform approaches for cryptoasset taxation.

The research explored the following topics relating to investors:

attitudes to and expectations towards past and future trends
expected changes to cryptoasset investment behaviours because of past and future trends
attitudes and drivers influencing investors’ choices of cryptoasset service provider
awareness and understanding of tax obligations in relation to cryptoassets
attitudes towards cryptoassets and their taxation
attitudes toward the role of advice and guidance in relation to the taxation of cryptoassets

The research explored the following topics relating to CASPs:

the operation of cryptoasset service providers in the UK, products offered by cryptoasset service providers, and key consumer trends and behaviours in relation to those products
behaviours and preferences around tax advice and guidance

3.2 Method

A qualitative, in-depth interview approach was used to identify and explore the range of ideas, experiences and attitudes held across the cryptoasset market.

It was anticipated that attitudes and motivations relating to cryptoasset investment behaviours and service delivery were likely to be influenced by individual factors and circumstances. Therefore, they were best explored in a one-to-one environment, where interviewers could ask follow-up questions to understand the nuances of participants’ responses. The intention of the research was not to identify the number of investors or providers who held a particular opinion.

A total of 53 interviews were conducted over Microsoft Teams or telephone between October 2024 and January 2025.

Forty-five interviews were conducted with UK-based cryptoasset investors. This included 41 interviews with High Net Worth Individuals (HNWIs) and 4 interviews with non-High Net Worth Individuals (non-HNWIs). The research focused on HNWIs to improve HMRC’s understanding of these market participants, specifically, how investors make decisions about the type of investments, products, and providers they engage with.

Eight interviews were conducted with UK-based CASPs. These CASPs provided a range of services to customers engaged in cryptoasset activity. The most common service was facilitating the buying, selling, and exchange of cryptoassets. All were registered and operating in the UK. Some were also operating in overseas markets.

3.3 Recruitment

Recruitment was undertaken using a range of sources:

HMRC sample of cryptoasset investors
publicly available information on CASPs registered with the FCA
contacts identified through recruiters’ own channels and data sources

Quotas were set for interview numbers to ensure the research was based on a range of different investor characteristics. These characteristics included the amount invested in cryptoassets, the length of time they had been investing for, typical trade values and attitudes towards investment risk. The numbers of investors with each characteristic are detailed in Tables 3.1 to 3.5 below.

Amount invested in cryptoassets

Amount invested in cryptoassets	Number of interviews
Less than £100,000	4
£100,000 to less than £200,000	9
£200,000 to less than £300,000	6
£300,000 to less than £400,000	6
Over £500,000	20

Length of time investing in cryptoassets

Length of time investing in cryptoassets	Number of interviews
Less than 6 months	2
6 months to less than one year	1
one to less than 2 years	0
2 to less than 5 years	9
5 years or more	33

Frequency of trades

Frequency of trades	Number of interviews
Daily	2
Weekly	6
Monthly	21
Yearly	15
Mix	1

Attitude to risk

Attitude to risk	Number of interviews
Cautious and avoids risk	3
Balances safe with some riskier investments	25
Comfortable with and often makes high risk investments	17

Investor type

Investor type	Number of interviews
High Net Worth Individual	41
Non-High Net Worth Individual	4

Question 4

4. Trends in Cryptoasset Activity by Individuals

Accepted Answer

This chapter details the investment behaviours of HNWIs who invest in cryptoassets. The investor findings described in this report are based on the interviews with HNWIs only, except where specified otherwise.

4.1 Goals of investing

The cryptoasset investors interviewed engaged in a diverse spectrum of cryptoasset related activities. Their investment behaviours aligned with their personal investment goals, preferences, and interests.

For example, those whose investment goal was longer term savings focussed on buying and holding cryptoassets that they considered to have lower levels of risk. This included investors who planned to use their gains to partially fund their retirement or provide finance for their adult children.

Investors with shorter term investment goals or who wanted to generate a regular income stream typically invested in a variety of assets with a range of risk levels to diversify their portfolio and maximise their chance of making a profit. They made frequent trades and monitored different asset values frequently so they could buy and sell at the optimal time to make gains.

There were also investors who held a personal interest in a certain cryptoasset or activity, such as being passionate about the technology behind a certain asset or feeling that an asset or investment activity fit their personal philosophy. These investors chose to mainly invest in their preferred asset while trading smaller amounts in a selection of other cryptoassets. Ultimately, two core categories of investor behaviours emerged; those that engaged in ‘buy and hold’ activities and those that engaged in more ‘active trading’.

Investors engaging in buy and hold cryptoasset investment behaviours tended to be focussed on generating longer-term savings or income over time. Investments were typically made monthly, often at the same time as investments in other assets, such as stocks and shares. They disposed of their cryptoassets over a variety of time periods depending on the investor’s goals, ranging from monthly to every 5 to 10 years.

Investors typically engaged in buy and hold related investment activities with cryptoassets they thought were least risky and most likely to have stable prices. These were typically cryptoassets that had existed for many years and had a history of price stability or gradual growth. Investors tended to avoid assets with a history of price volatility or new assets whose future performance was uncertain.

These investors explained that this was because they treated investment in cryptoassets like any other investment, such as investments in stocks or shares. Therefore, they chose cryptoassets that they thought had a calculable and predictable level of risk attached to them as they expected them to act like other assets. This was especially important for investors who planned to use some of the savings from their cryptoasset investments to fund their retirement.

For those engaging in more active trading behaviours, goals tended to be more focussed on short-term money making as a regular form of income. For some investors, this was their main income source and for others it was a secondary income source.

Activities in this category tended to be more frequent and involved a higher volume of trades over a short period of time such as daily or hourly. Compared to buy and hold investment activities, active trade investors reported a higher volume of trading over a shorter period of time, such as daily or hourly. Such trading generally constituted trades of lower value.

This active trading was done with established cryptoassets but also with newer and slightly more volatile cryptoassets. Investors engaging in this type of activity acknowledged that there was a higher risk of losing money with this type of investment.

They largely avoided trading in what they considered to be very volatile assets. Examples of these given included Non-Fungible Tokens (NFTs) or cryptoassets created by individuals with perceived limited credibility.

However, there were some investors who said they experimented by investing smaller amounts in any cryptoasset that they thought could be profitable. They acknowledged that they could easily lose the money they invested. This second group of activities also involved more ‘complex’ activities beyond simply buying and selling cryptoassets, such as yield farming, staking, and trading in derivatives.

Some investors took part in active trading and buy and hold investment activities to diversify their investment portfolios. Some undertook only buy and holding investments because they reported they found it less risky and less time-consuming than other activities.

There were investors who used to do both active trading and buy and hold investment in the past but now only took part in buy and hold investment of cryptoassets. This was because they had less time to spend on active trading and had developed an investment approach to cryptoassets that they were confident in.

4.2 Investors’ use of CASPs

Investors primarily used CASPs that operated as centralised exchanges to facilitate the buying and selling of cryptoassets. Some investors used multiple CASPs at the same time. Some investors also used CASPs as a digital wallet provider which was usually the same CASP that facilitated exchanges on their behalf.

Investors prioritised the security of a CASP over any other feature when they chose which CASP to use. This included security from the exchange being hacked and security from exchanges collapsing after financial trouble or technical problems. Investors wanted to avoid these incidents because they worried it could lead to a loss of their assets.

Investors typically based their judgement of CASP security on its reputation, history of known security breaches and recommendations from peers.

“[When choosing a CASP] the only thing that matters to me is security.” Investor, invests £500,000 or more

Investors reported that they also appreciated CASPs that had intuitive or easy-to-use interfaces, but that this was a secondary concern to security.

Investors did not receive nor expect CASPs to provide advice related to their investment choices or their associated tax regulatory requirements. Instead, investors reported that they typically used their own knowledge, previous experiences and peer networks to guide their investment choices.

4.3 Difference between HNWIs and non-HNWIs

The majority of investor interviews were with HNWIs and only a limited number of non-HNWIs were included in the research. Therefore, any comparisons between these audiences are indicative only.

Non-HNWIs’ investment behaviour differed from HNWIs in a few key ways. Firstly, those interviewed typically only traded in established cryptoassets and only took part in ‘buy and hold’ activities. The main reason for this was because they did not want to risk losing money, as the non-HNWIs we spoke to were risk-averse.

Secondly, they did not consider their cryptoasset investments as a main income source. Instead, they viewed it as a way to make extra money, for example to top-up savings. They therefore chose to invest in assets they believed would produce reliable returns and that in their view acted like stocks and shares, such as well-known tokens with a history of stability and increasing value. This was a similar investment choice to some HNWIs, just on a smaller scale.

Similar to HNWIs, they also prioritised security when choosing a CASP and were very cautious about scams. For instance, they only traded in what they saw as ‘safe’ assets on exchanges that they saw as reputable.

4.4 Investor views on centralised and decentralised exchanges

Investors reported a preference for centralised exchanges because they considered them less risky than decentralised exchanges. For example, investors recalled some CASPs made marketing claims to protect investors’ assets and personal data from scams by verifying transactions before releasing funds. Investors reported believing these claims due to the good reputation of what they saw as the largest CASPs that could operate in the UK. The good reputation comes from the lack of history with hacks and scams related to that CASP.

Investors believed CASPs are accountable under UK regulations, so assumed they had measures to protect investors from losing their cryptoasset holdings. Investors also believed centralised exchanges would be more motivated to be secure to protect their reputation.

“I would avoid a decentralised exchange as it could disappear at any point. I want someone accountable if I’m giving them money.” Investor, invests £500,000 or more

Investors explained that centralised exchanges also simplified the process of trading cryptoassets by storing the ‘key’ for them and managing the trade. In contrast, investors reported decentralised exchanges were less user-friendly, more time-intensive and more complicated to use.

Further to this, investors took the view that decentralised exchanges presented a higher risk of losing assets or money if the exchange collapsed or experienced technical issues. They explained this was because nobody was accountable for decentralised exchanges, so no individual or company was responsible for repaying any losses. Decentralised exchanges were also seen as presenting a higher risk of scams due to the lower levels of monitoring and regulation.

A subset of investors who particularly liked the concept of peer-to-peer trading with no third-party involvement said they still chose to use centralised exchanges. They chose this over decentralised exchanges due to their greater perceived security. These investors reported that if decentralised exchanges were more regulated and easier to use, they would ideally use them instead of centralised ones.

“Decentralised [exchanges] fits the ideology of crypto[assets]… but there are definitely drawbacks… It is not as straightforward to use.” Investor, invests £300,000 to £400,000

4.5 Impact of market events and changes to market conditions on attitudes towards cryptoassets

Previous investment trends and impact on investment choices

The HNWIs interviewed explained that over their years of experience they had developed an investment portfolio and trading strategy that worked for them. Their previous investment choices were therefore mostly based on this strategy rather than a direct response to external market, geopolitical, or regulatory changes.

There were individuals who had made changes to their investment choices due to external factors, but these were not large departures from their original strategy. For example, some had reduced the variety of different cryptoassets they invested in to simplify their tax reporting. Others had started investing in a certain cryptoasset instead of another if they thought it could be more profitable.

Investors who took part in ‘active trading’ frequently changed what assets they invested in. This was to ensure they were investing in what they considered to be the most profitable assets. Each investor differed in how they determined this. However, this was a behaviour reflective of the short-term and speculative nature of active trading rather than in response to external market or geopolitical changes.

HNWIs typically had taken part in active trading in the past but had moved away from it as it took time and effort. This was also largely due to personal trading activity preferences rather than an impact of external events.

Instances of exchanges being hacked or crashing due to technical issues did appear to have a significant impact on investors’ decisions about which CASP to use. At the time of fieldwork, a large exchange had recently experienced a technical issue resulting in the investors using it losing their assets. This was mentioned unprompted by some investors as evidence of why they were cautious with which CASPs they used.

Investors reported only using exchanges they thought were the safest from hacking or those that they believed were capable of reimbursing investors for lost assets. Some reported regularly removing their assets from the exchange they were using to minimise the likelihood of incurring a loss due to a problem with any one individual provider.

However, investors did not stop investing in cryptoassets or change the assets they invested in after hearing about instances of technical issues with exchanges or hacking of exchanges. It was the exchange itself that they were wary of rather than the cryptoassets they had chosen to invest in. Some investors acknowledged some cryptoassets, such as newer tokens, were riskier to invest in as they could stop existing, but reported that they did not invest in these anyway.

Investors reported a downward trend in the prevalence of mining activity among investors over the past 10 years. Some investors had engaged in mining activity when a cryptoasset was first introduced. However, they had stopped mining when it became no longer accessible to do so.

Those who had previously mined cryptoassets explained that it became inaccessible when it was no longer lucrative on a small-scale and that large-scale mining is expensive and time-consuming to do. They explained that this is because it requires very large amounts of electricity alongside specialised software and hardware. Investors reported mining is therefore now mainly done at a larger scale by specialists or firms who can afford to do so.

4.6 Future expectations and impact on investment choices

Investors had confidence that some cryptoassets will retain long-term value. They believed there was always a chance of shocks to the market and specific assets losing value. Investors planned to keep investing in cryptoassets despite this awareness of the risk of a market crash. This was because they largely believed that their value would go up again, following the up-and-down trend typical of most investments.

They did not expect cryptoassets as an overall asset type to become unprofitable, but they did expect that specific cryptoassets may perform better than others.

Future external regulatory and geopolitical changes were expected to impact the future value of cryptoassets. Expectations of cryptoasset-friendly regulations in other countries gave investors confidence that their cryptoasset investments would be profitable. However, investors did not report plans to significantly change their investment strategy in response to this.

Investors also expected cryptoassets to become a more mainstream investment choice over time. This would follow increasing levels of awareness and confidence in cryptoassets among the public. It was anticipated that this would include an increase in the number of non-professional investors and more mainstream consumer audiences.

Some hoped that this trend would lead to a more hospitable regulatory environment and a reduction of regulations banning certain activities in the UK. This included being able to use some large international exchanges and the ability to take part in activities currently prohibited or restricted in the UK market. Examples mentioned included Exchange-Traded Funds (ETFs) and trading in cryptoasset derivatives.

Question 5

5. Individuals and Tax: attitudes, awareness and understanding

Accepted Answer

This chapter details HNWIs’ attitudes towards, awareness of, and understanding of UK tax obligations relating to cryptoassets. It also explores their use of financial advisers, accountants, and tax calculators in complying with these obligations.

5.1 Attitudes and awareness

HNWIs typically had high levels of awareness of their tax obligations. They knew their cryptoasset activities were liable for tax in the UK and knew that it was CGT that they were liable for. Additionally, they knew the value of gains over which they would be liable for CGT.

Investors reported that this awareness had increased over the past ten years as HMRC guidance relating to cryptoasset investment and tax had gradually been published.

HNWIs reported that they wanted to be tax compliant. They typically worked in heavily regulated industries, such as finance, and were conscious of potential consequences of poor tax compliance. They did not report negative attitudes toward the fact that cryptoasset activities could be liable for tax. This was often because they saw cryptoasset investment as being akin to other investment activities that they already paid tax on.

5.2 Understanding

Investors reported that over the past ten years they found the tax information relating to cryptoassets that HMRC provides had become much clearer. They appreciated the guidance available on GOV.UK and some investors mentioned the worked examples available were particularly helpful.

HNWIs believed they had a strong understanding of what they were liable for and what they needed to do to calculate their tax liability. However, some reported they found the practical reality of calculating their obligations difficult for several reasons relating to the nature of cryptoassets.

The most prominent of these reasons was that it is common for investors to make a high frequency of trades in a short period of time. This was particularly the case for those engaged in ‘active trading’ activities. They reported finding that calculating the individual profit from each trade was very complex, some consider it not possible.

Calculating tax liability on numerous trades was made more challenging if they invested in lots of different cryptoassets. Investors also found that tax calculations were made more difficult when they had to take into account the exchange rate of each asset at the time of the purchase and sale. The exchange rate can change very frequently, such as hourly.

Some activity was felt to not be directly covered by current HMRC guidelines, so investors felt they were left guessing which guidelines or regulations applied. Examples given of such activity included trading in derivatives, yield farming, staking, and cryptoassets acquired for free and then sold for a profit.

Several investors felt it was unclear whether exchanging one cryptoassets for another counted as a gain and was, therefore, taxable. Investors who knew that this activity could be taxable found it difficult to calculate tax liability for profit made when exchanging one coin for another. They found this difficult for the same reasons already mentioned, such as that they made many trades over a short period of time with different cryptoassets that frequently change in value.

Due to this complexity, investors who made frequent trades relied on tax calculation software provided by third parties to work out their tax obligations. Investors downloaded reports of their trading history from the CASP they used as an exchange and inputted this information into the calculator.

“Without the software, it would be next to impossible [to calculate tax], because it’s such a convoluted process… It’s not straightforward.” Investor, invests £300,000 to £400,000

“There is complexity in accounting manually… The only way you can do it is computationally.” Investor, invests £500,000 or more

They paid to use this software and reported the cost was worthwhile because they felt they would not be able to work out their tax obligations otherwise. In some cases, the investor used the software themselves and in other cases their accountant did it for them.

However, investors reported concerns about the reliability of these calculators, even if they had not experienced any issues. Investors also reported difficulty inputting the information about their trades to the calculator. This was because the calculators were not designed to read trading reports automatically and each CASP provided trading reports in a different format. The format of the outputs from tax calculators were also reported to be inconsistent. Investors also cited this as a barrier to tax compliance as it made it difficult to populate tax returns.

Investors reported a desire for HMRC to approve or verify a tax calculator. This was so they could be assured they were declaring and paying the right amount of tax. They also reported they would like CASPs’ trading history reports in a consistent format or a format that could be easily uploaded to tax calculators.

There were also investors who felt tax requirements could be redesigned to fit the specific nature of cryptoassets better. Currently, these investors felt pre-existing CGT rules were being applied to the domain of cryptoassets without consideration of the unique nature of cryptoassets.

Investors tended to use their ‘general’ accountants or tax advisors to help with their cryptoasset tax reporting. These were professionals they typically engaged to help with all their financial activities, not just cryptoassets.

Investors typically felt that accountants were not particularly knowledgeable about tax reporting for cryptoassets. They did report that accountants’ general awareness and knowledge of the nature of cryptoasset activity had increased in the last decade. It was not common for investors to engage specialised cryptoasset accountants to help with tax compliance although investors were aware that such professionals do exist.

“There has to be an acceptance that you go to a set decimal point, which is different for different coins… We have a binary system for pounds but on crypto that doesn’t work very well. There might be fees that I haven’t accounted for.” Investor, invests £500,000 or more

“I was doing this liquidity mining here, and lending and borrowing there, and doing all this fancy stuff. And I didn’t know what came under Capital Gains and what came under income. Even on the [HMRC] website… it was unclear; it could be this, it could be that.” Investor, invests £500,000 or more

5.3 Difference between HNWIs and non-HNWIs

The small number of non-HNWIs interviewed as part of the research typically had low understanding of tax relating to cryptoassets. They either did not know cryptoasset activity was liable for tax or correctly assumed their disposals were not of high value enough to be liable for tax. Some of these non-HNWIs knew there was a threshold over which cryptoasset investment gains may be liable for tax, but did not know what the amount was and assumed it was much higher than the value of their gains.

The non-HNWIs who thought their cryptoasset investment gains were not liable for tax had not searched for information about tax relating to cryptoassets when they began investing and did not know what the Annual Exempt Amount (AEA) was. Instead, they confidently assumed their gains were not high enough to be taxable.

“My understanding is it isn’t taxed at all. Personally, I don’t have a huge amount [invested in cryptoassets], so it’s not relevant.” Investor, invests less than £100,000

When probed, non-HNWIs either knew or correctly assumed it was CGT that gains from cryptoassets could be liable for.

Some non-High Net Worth Individuals reported that if they ever found they were making gains from disposals that were liable for tax, they would respond by reducing the amount they invested in order to make their gains lower to avoid incurring associated CGT. Others said they would keep some money aside to pay tax if they ever happened to make enough of a gain to be liable for this. However, they expected this to be an unlikely or infrequent occurrence. As these investors did not know the AEA, these reported actions did not appear to be based on a clear understanding of tax relating to cryptoassets.

The non-HNWIs interviewed for this research did not use accountants for their cryptoasset activity. They felt there was not a need for this since their investments were not liable for tax. They also did not use financial advisors for investment advice. Instead, they sought information and advice about cryptoassets from non-HNWI peers also investing in cryptoassets and from online sources they saw as reputable. These included online publications and newsletters.

Question 6

6. Cryptoasset Service Providers (CASPs)

Accepted Answer

This chapter presents the findings from interviews with CASPs. It covers the operation of CASPs in the UK, including the products and services offered and their main revenue and expenses.

It also details CASPs’ views of the cryptoasset market at the time of research and their expectations of how this will develop in the future. Particular focus is placed on the impact of regulatory changes. Lastly, it outlines CASPs’ views on their own tax obligations as businesses operating in the UK and how they offer support to investors.

6.1 Operation of CASPs

The CASPs who participated in the research all operated in the UK. Some were exclusively UK-registered businesses and others also operated in other regions of the world.

The CASPs who took part in this research operated as centralised exchanges in the UK, providing services which facilitated the buying and selling of cryptoassets. As centralised exchanges, they provided a platform for investors to trade cryptoassets and custody services through digital wallets.

Some CASPs also offered ancillary products and services to UK customers. These included the facilitation of business-to-business trading, staking and cryptoasset credit cards. New services also included the development and sale of new technologies for new cryptoasset use cases, one such area being payments for goods and services.

The products and services offered by CASPs who operated across multiple markets were tailored depending on both customer demand and individual country’s laws and regulations.

In general, CASPs felt the UK regulation for operation as centralised exchanges was clearer than for decentralised operations, and that UK customers had a preference for using centralised CASPs. They therefore felt more comfortable operating as centralised exchanges in the UK.

In terms of security for the provider and investor, they compared the operation of a centralised exchange to more traditional financial services. They reported that the customer information collected, and identification checks performed were very similar to those done by more traditional investment platforms. This meant that centralised exchanges were considered more security-focused than decentralised exchanges, which enabled peer-to-peer trading without third party intervention or security.

CASPs felt that in the UK at least, the investor market preferred to trade with this level of security. However, some businesses offered decentralised services in other jurisdictions and were considering expanding these to the UK in the future as cryptoassets become more popular.

“Centralised exchange, [as] I see, [is] a similar model to traditional finance, where we audit our customers, we collect Know Your Customer (KYC) documentation, we verify their identity, and then we custody assets as well.” CASP, centralised exchange

6.2 Revenue and expenses

CASPs were also asked about their main revenue and expenditure streams. They reported that their main source of revenue was exchange fees, which were charged to customers for every transaction made using their platform. These fees had consistently been, and were expected to remain, the key income stream for CASPs.

“I’d say probably trading fees were the biggest [revenue source].” CASP, centralised exchange

CASPs also felt that cryptoassets were becoming increasingly ‘mainstream’ and well-known in the UK, particularly outside of experienced investor networks. This has meant the use of their services had expanded and exchange fees had become a more reliable source of income.

There were CASPs who were looking to diversify their income streams beyond exchange fees. Those who were planning to do this were developing new products and services for both existing customer bases as well as to target new customers. Some CASPs reported a plan to move into business-to-business trading with established financial entities. These included hedge funds and pension providers who CASPs felt, in the past, may have viewed cryptoassets as too risky or unpredictable to trade in.

The CASPs interviewed provided further detail about their experiences with other regulation in the UK. These views were shared unprompted but provide more insight into the experience of CASPs, so have been included below.

CASPs reported that the costs associated with monitoring and compliance with regulatory developments were a substantial expenditure of their businesses. These costs mainly came from legal fees and staffing compliance roles who monitored and implemented changes in regulations. CASPs reported that these costs had increased in recent years and they expected them to continue to increase.

CASPs felt that being regulated by the Financial Conduct Authority (FCA) was regarded internationally as a symbol of a high standard of operation. Therefore, CASPs reported that they considered it to be desirable to be registered with the FCA in the UK. Some felt the costs associated with regulation provided value as they felt potential customers and other actors in the cryptoasset industry would regard them more highly and, as a result, choose to do business with them over other non-regulated CASPs.

However, some viewed the financial cost of being regulated as restrictive to their growth. One CASP mentioned that if the regulatory environment when they had set up their CASP was the same as currently, they might not have set up their CASP in the UK.

They also felt that the ever-evolving regulatory landscape was a key factor behind high compliance costs. They expected this to continue to be the case as CASPs continue to prioritise compliance. As a result, CASPs wanted greater clarity on the products and services that were now allowed in order to avoid confusion and fines for non-compliance.

“There was considerable kudos and recognition by being registered with the FCA in the UK. It’s a highly desirable thing… It was an important consideration when setting up the business.” CASP, centralised exchange

“The UK is the most respected regulator outside [other country]. [It is] important for us to advertise for clients and investors.” CASP, centralised exchange

CASPs reported that whilst the costs associated with running the business and the increase in regulations had made it challenging to develop new services in the UK, most were still planning to expand.

6.3 UK’s cryptoasset market

CASPs were asked about their views on the UK’s cryptoasset market and those of other countries. The views expressed in this section relate to the characteristics of the market at the time of the interviews, which may have since changed.

While FCA registration made the UK an attractive jurisdiction to operate in, its cryptoasset market was viewed by CASPs as less established than other countries’. Markets in certain European and Asian countries were viewed as more established than the UK. CASPs reported that investors in those countries tended to view cryptoassets similarly to more traditional types of investment. As a result, the UK market was also noted for being more limited in its scope for growth compared to other markets. This was due both to its smaller size and limitations and restrictions on which cryptoasset activities were permitted compared to other countries.

Markets in other countries were also reported to have regulatory frameworks designed to be more cryptoasset-specific than the UK, rather than general regulations applied to cryptoassets. CASPs reported these were less complicated than the UK’s, meaning businesses that operated there spent less on compliance monitoring and management.

When discussing regulation, CASPs mentioned the EU Markets in Crypto-Assets (MiCA) regulation, which had been developed in recent years. This was viewed as an accessible and cryptoasset-tailored regulation. MiCA was felt to be more suitable for cryptoasset activity compared to current UK regulation.

CASPs noted that current UK regulation had been adapted from previous financial regulation and was not tailored to address the complexity of cryptoasset activity. Like investors, they explained one complexity UK regulations did not account for was the unique nature of some activities. Some CASPs therefore felt that certain activities were not explicitly covered by UK regulation, whereas EU regulation was specific to cryptoassets.

“[in the UK] there’s a lot of regulatory uncertainty. But in Europe they have MiCA which is a full regulatory framework for crypto[assets] specifically. The FCA need to hurry up and give a MiCA equivalent in the UK, because otherwise most firms are going to pick France or Germany.” CASP, centralised exchange

CASPs were asked about their views on how the cryptoasset market would develop over the next five to ten years. Overall, there was an expectation that cryptoassets will become ‘mainstream’ in the UK. This was felt would lead to increased numbers of less-experienced investors trading, and more ways to use cryptoassets and technologies.

CASPs felt that until recently, cryptoasset activity had been almost exclusively undertaken by experienced investors who had expansive knowledge of trading and the stock market. They felt that this was beginning to change, with newer and less experienced investors beginning to engage with cryptoassets and CASPs’ services. They also anticipated that the newer trend of established financial services providers becoming involved in cryptoassets would continue to grow. This included hedge funds and pension funds.

In terms of new use cases, CASPs felt that cryptoassets and digital assets would soon be used in areas such as online payments. CASPs were already often involved in developing, buying, and selling new technologies for cryptoasset activities.

“[I anticipate] more hedge funds and pensions and asset managers being forced to act in the crypto[assets] scene as there’s so much money to be made.” CASP, centralised exchange

CASPs also expected regulation to develop alongside this expansion of the UK cryptoasset market. As less experienced investors begin to trade in cryptoassets, CASPs felt regulation would likely grow and develop in areas that could protect both them and investors from harm, such as scams and fraud.

CASPs largely welcomed clarity in regulatory developments, particularly in areas that could help to protect their customers. At the same time, they feared ‘over-regulation’ of an industry that they felt is not yet fully understood by regulators.

6.4 Cryptoasset service providers and tax

CASPs were asked about tax both in respect to their operation as a business, as well as regarding their customers.

As a business, CASPs reported that they understood their tax obligations very well. They reported that paying their Corporation Tax to HMRC was straightforward and standard. They explained they felt it was no different than it would be for any other business operating in the UK. They also felt that interactions they had with HMRC regarding Corporation Tax had been helpful and largely without issue.

The HMRC website was also noted as a good source of clear and reliable information about operating as a CASP in the UK.

For CASPs that were founded in the UK, it was reported that they had faced difficulties securing bank accounts and business loans. They felt that this was due to a lack of understanding about cryptoassets by UK banks. They explained this led to banks to be overly risk-averse and often refused to engage with start-ups involved in cryptoassets.

The issues CASPs reported around operating in the UK regarded understanding and abiding by regulatory frameworks. CASPs recognised this was not under the control of HMRC. CASPs’ views around regulation are covered in the previous section of this report.

“The HMRC website is clear. You can never get everything under the sun covered… the examples are great.” CASP, centralised exchange

CASPs were also asked about the information they gave to customers regarding tax obligations. They reported that they did not give tax advice to any customers either on their platforms or via account managers. They noted that they did not see this as an appropriate role for their business and preferred to avoid giving advice because of concerns over the consequences of advising customers incorrectly.

CASPs also worried that providing too much tax information would alienate their customer base. This was because they felt their customer base had chosen to engage in cryptoasset activity because they strongly associated it with no state or third-party interference. Therefore, reminders about tax could put them off.

They felt that the extent of their responsibility regarding tax was in providing customers with the information they needed to complete their tax assessments. CASPs explained this did not include any advice or guidance related to tax. They stated that even if asked by customers, they would not give tax advice.

“One of the things in this industry is there’s this class of customer who feels like everybody’s out to get them. And so, telling them about their tax reporting obligations is not going to go down well. You’re just going to alienate your customer base, frankly. And we’re already forced to do enough things that upset our customers.” CASP, centralised exchange

CASPs felt that the role of tax advice should sit with advisors and accountants and reported that often their customers employed people with these qualifications for this.

While they stated that they would not give tax advice, CASPs were open to the idea of giving generic information about tax to their customers. They gave an example of displaying information on their platforms telling investors that their activity may be liable for tax and that it is Capital Gains Tax they may be liable for or providing information to new investors when they first signed up.

“I’m definitely willing to work with HMRC to understand the obligations [and to help] customers understand their obligations, but I don’t think, as a retail exchange, we would want to be in the business of tax enforcement.” CASP, centralised exchange

“Certainly [we would] respond to legal notices that we have an obligation to respond to and we will provide information, whether it’s information that we’re regulatorily obligated to provide to HMRC or customers, or if we can provide helpful information to our customers.” CASP, centralised exchange

In terms of tax reporting, CASPs were preparing for the implementation of the Organisation for Economic Co-operation and Development’s (OECD) CARF, which will take effect on 1 January 2026. CASPs understood this framework will require them to report the cryptoasset activities of their customers to address tax non-compliance.

“It will be increasingly regulated. Increasingly difficult to do what you want to do as a business.” CASP, centralised exchange

CASPs were content to adhere to the OECD’s CARF and to cooperate with HMRC to implement it. Under CARF, they understood their role would be to pass on reports of cryptoasset transactions to HMRC. They welcomed the clarity that a specific framework would provide. However, CASPs also reported discomfort with the potential role of tax enforcement, which they saw as solely HMRC’s responsibility.

They anticipated that the new requirements under CARF would take additional time and money for CASPs, but they were not yet certain as to exactly what the new framework would require of them.

CASPs hoped initiatives such as CARF could help make tax reporting more efficient by standardising transaction reports. CASPs were aware that different exchanges produced differently formatted reports which they felt might complicate tax reporting for customers.

“I’ve always been very pro, you know, government regulating different types of information reporting to give customers what they need, to give HMRC what they need.” CASP, centralised exchange

CASPs thought that tax reporting should be the responsibility of the individual investor. CASPs suggested that tax reporting could be simplified for investors if HMRC supported a tax calculation software.

6.5 CASPs’ expectations of future trends

Like investors, CASPs also expected cryptoasset investment to become a more common and normalised form of investment in the UK. They provided examples of this trend, such as hedge funds and pensions funds already beginning to incorporate cryptoassets into their portfolios.

In preparation, some CASPs were looking to develop products and services aimed at facilitating business-to-business cryptoasset investment behaviour. Others were trying to make their exchange interfaces as user-friendly as possible to accommodate less experienced investors.

CASPs also reported providing tools to help with investment. These tools included example portfolios or test accounts where potential investors could practice in a simulated environment before making official trades. However, they did not currently provide, nor plan to provide, investment or tax advice to customers.

CASPs also expected the regulatory and legal environment in the UK to change in the near future. This included a general increase in the perceived ‘strictness’ of regulations relating to cryptoassets in the UK, such as what activities are permitted in the UK. It also included further measures to protect investors from scams and greater requirements to monitor, protect against, and report instances of financial vulnerability

CASPs also mentioned the introduction of CARF as a key change expected in the cryptoasset industry. Though this is not classified as regulation, CASPs viewed it in the same category as cryptoasset regulation imposed by the FCA as it was another external requirement they would need to adhere to and use resources to comply with. They were preparing for the introduction of CARF by researching the framework and considering the impact it may have on their business.

Question 7

7. Technical annex

Accepted Answer

7.1 Recruitment overview

Recruitment took place between 18 September 2024 and 16 December 2024. Recruitment was carried out by Ipsos’ external recruitment partner, Criteria Fieldwork.

Recruitment was undertaken from a range of sources:

HMRC sample of cryptoasset investors containing information relating to tax years 2019 to 2022
publicly available information on CASPs registered with the FCA
free-found contacts identified through recruiters’ own channels and data sources

Investor participants from HMRC sourced sample who had email addresses or postal addresses were sent an email or postal letter before fieldwork. This communication introduced the research, invited them to book an interview, and explained how they could opt out of being contacted about the research again.

Individuals based in Wales were sent a bilingual Welsh and English email or letter. This communication was sent on 18 September 2024. They were given until 10 October 2024 to contact Ipsos to opt out. After this, any records who had not opted out of contact were contacted by Criteria to take part in the research.

CASP personnel were more challenging to recruit than investors. The main reasons were individuals reporting to be too busy to participate or failing to respond to recruitment communications. To overcome these challenges, the following steps were taken.

Firstly, the fieldwork period was extended to allow more time for recruitment to take place and to provide more dates for participants to book interviews. Secondly, individuals associated with CASPs were directly approached to invite them to an interview. Ipsos made these direct approaches via the social media platform ‘LinkedIn’. The HMRC stakeholder team directly approached individuals via email and asked them to contact Ipsos to book an interview.

No interviews were booked from approaches via LinkedIn, but interviews were booked as a result of HMRC’s direct email approaches.

7.2 Incentives

A personal incentive was offered to all participants who took part in an interview. Investors were offered a choice of either a £75 charity donation to a UK-registered charity from an approved list, or a £75 online shopping voucher. CASPs were offered a charity donation of £75.

7.3 Participant profile

Initial quotas were set on the recruitment of CASPs, HNWIs and non-HNWIs, which were changed throughout the fieldwork period in response to recruitment challenges.

Completed interviews for each audience type

Audience type	Completed interviews
Cryptoasset Service Provider	8
High Net Worth Individual	41
Non-High Net Worth Individual	4

Quotas were set on recruitment to ensure the research was based on a range of different investor characteristics. These characteristics included the amount invested in cryptoassets, the length of time they had been investing for, typical trade values and attitudes towards investment risk.

The numbers of investors with each characteristic are detailed in Table 7.2 to Table 7.6 below.

Completed interviews by amount invested in cryptoassets

Amount invested in cryptoassets	Achieved (Total)	Achieved (HNWI)	Achieved (non-HNWI)
less than £100,000	4	0	4
£100,000 to less than £200,000	9	9	0
£200,000 to less than £300,000	6	6	0
£300,000 to less than £400,000	6	6	0
over £500,000	20	20	0

Completed interviews by length of time investing in cryptoassets

Length of time investing in cryptoassets	Achieved (Total)	Achieved (HNWI)	Achieved (non-HNWI)
Less than 6 months	2	0	2
6 months to less than one year	1	1	0
one to less than 2 years	0	0	0
2 to less than 5 years	9	8	1
5 years or more	33	32	1

Completed interview by frequency of trades

Frequency of trades	Achieved
Daily	2
Weekly	6
Monthly	21
Yearly	15
Mix	1

Completed interviews by attitude to risk

Attitude to risk	Achieved
Cautious and avoids risk	3
Balances safe with some riskier investments	25
Comfortable with and often makes high risk investments	17

7.4 Method

The method used for this research was qualitative in-depth interviews. These were held on Microsoft Teams or by telephone.

Interviews lasted 45 minutes to 1 hour.

Interviews were guided by a topic guide, which was created in collaboration with HMRC. Separate topic guides were created and used for CASPs and investors.

The content of these topic guides was updated after the first analysis session when new research areas of interest were requested by HMRC. These changes were added questions to investors about cryptoasset mining activity, more specific focus on investors’ interactions with HMRC, and more explicit focus on the difference between FCA regulation and HMRC tax reporting requirements.

7.5 Analysis

All interviews were audio recorded, listened back to and interview notes written up in an analysis grid. An analysis grid is an excel file with a column for each detailed research area of interest and a row for the findings from each interview. There are also columns for demographic and profile information so research questions can be analysed by profile group.

Group analysis sessions were then held mid-way through the fieldwork period and following completion of all interviews. These sessions were a discussion to determine key themes relating to each research question and compare and contrast interviewer opinions. HMRC colleagues were invited to observe the analysis sessions.