Disclaimer: This article is intended as an informative piece. This is not accounting or tax advice. Please speak to a qualified tax professional about your specific circumstances before acting upon any of the information in this article.
Although this may seem nonsensical, due to the way cryptocurrencies are taxed and the volatility of the cryptocurrency markets, this has happened many times before. The way it usually happens is as follows:
An investor purchased 10 ethereum (ETH) at £800 per token in October 2023, costing £8,000 in total
The price then rose strongly. In November 2025, with ETH trading at £2,800, the investor swapped all 10 ETH for a new token they believed in, receiving tokens worth £28,000. Swapping one crypto for another counts as a disposal for capital gains tax purposes
This means the investor has made a taxable gain of £20,000 (£28,000 proceeds less the £8,000 cost)
The investor believes in the long-term value of the new token, so decides to hold it for the foreseeable future.
Fast forward to January 2027. The investor is completing their tax return for the 2025/26 tax year, for which the deadline to submit is 31 January 2027. The new token has decreased in price tremendously and their holding is now worth just £2,800.
When calculating the capital gains tax owed to HMRC, the investor has £20,000 in cryptocurrency capital gains. They also have other capital gains from selling a rental property, so have already used the £3,000 annual exempt amount.
As the investor is a higher-rate taxpayer, they pay capital gains tax on crypto at 24% (the rate for disposals made on or after 30 October 2024). The tax to pay on the £20,000 gain from disposing of their ETH is therefore £4,800. The current value of the tokens they hold is £2,800, so their portfolio is worth £2,000 less than the tax due for that year.
There is a silver lining however. The investor now has an unrealised loss on the new token of £25,200 (£28,000 of cost against a £2,800 value). If the investor were to sell the tokens now and realise this loss (as long as they didn't rebuy the same token within the 30 day bed and breakfasting period) they will be able to use the £25,200 capital loss in their 2026/27 tax return to offset any gains in that year and also carry the remaining loss forward to offset future capital gains.
Although this is quite a simplified scenario, similar ones have occurred. Due to the way the cryptocurrency market has performed in recent years and how the tax years fall, it is much more common than people would expect.
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