Paying tax on your crypto profits can feel frustrating, especially when parts of your portfolio are sitting at a loss. But what if there was a way to use those losses to your advantage? That’s where tax loss harvesting comes in. It’s a smart, legal strategy that helps reduce your crypto tax bill by offsetting your gains with the losses you’ve already made. If you’ve sold or plan to sell digital assets at a loss, you can use those losses to bring down the amount of Capital Gains Tax (CGT) you owe.
This approach is particularly useful for crypto investors in the UK, where market volatility can quickly turn profits into losses. With the CGT-free allowance now reduced to just £3,000 for the 2024–25 tax year, it’s more important than ever to be strategic. By using tax loss harvesting before the financial year ends, you can cut down your taxable gains and make sure you’re not paying more tax than you need to.
Whether you are an active trader or a long-term crypto holder, tax loss harvesting can be fruitful if you use it the right way.
Read More: Crypto Tax In The UK: The Ultimate Guide
What Is Tax Loss Harvesting in the UK?
Tax loss harvesting is a method that allows you to reduce your overall Capital Gains Tax liability by intentionally selling crypto assets at a loss. These realised losses can then be used to offset gains made from other profitable crypto disposals during the same financial year. If your losses are more than your gains, the excess can be carried forward to offset gains in future years.
In the UK, tax loss harvesting is particularly relevant for crypto investors because of the way His Majesty’s Revenue and Customs (HMRC) treats digital assets. Every time you sell, swap, spend, or gift cryptocurrency, it may be classed as a disposal, and if you make a profit on that disposal, CGT applies. But if you’ve also made losses from other disposals, you can use those losses to reduce the amount of tax you owe on your gains.
This strategy is fully recognised by HMRC, provided you follow the rules around how and when losses are reported. You cannot claim a loss on crypto that you continue to hold, and you must report losses within four years to carry them forward. Used correctly, tax loss harvesting can be a powerful way to legally manage your crypto tax obligations and avoid paying more than necessary.
When Can You Use Tax Loss Harvesting?
Tax loss harvesting works only under specific circumstances, and it’s important to understand when it applies. The key factor is whether you’ve realised a loss, meaning you’ve disposed of the asset at a value lower than what you paid. Below are the common situations where you can legally use this strategy.
During a Crypto Disposal Event
You can only use tax loss harvesting when a disposal has taken place. In HMRC’s terms, a disposal includes:
- Selling crypto for fiat currency
- Swapping one crypto for another
- Spending crypto on goods or services
- Gifting it to someone other than your spouse or civil partner.
If you’ve made a loss during any of these events, that loss may be used to offset gains from other disposals in the same financial year.
When Your Capital Gains Exceed the Allowance
The UK offers a CGT allowance of £3,000 for the 2024–25 tax year. You only need to pay CGT on gains that exceed this threshold. Tax loss harvesting becomes useful once your total gains for the year go beyond this limit. At that point, any eligible losses you’ve realised from crypto disposals can be used to reduce the taxable portion of your gains.
Before the End of the Financial Year
Timing is key when it comes to tax loss harvesting. If you want to reduce your CGT bill for a given tax year, you must realise your losses before the tax year ends on 5 April. Waiting until after this date means those losses can only be applied to gains in the following year. To make the most of this strategy, it’s important to review your portfolio regularly and act before the deadline.
HMRC Rules for Claiming Crypto Losses
While tax loss harvesting can help reduce your Capital Gains Tax, HMRC has specific rules on how and when you can claim those losses. It’s not just about selling at a loss, you must also report and use those losses correctly to benefit from them. Failing to follow the rules may result in your losses being disallowed for future use.
Only Realised Losses Are Allowed
HMRC only permits you to claim losses on crypto assets once they have been disposed of. This means selling, swapping, gifting (to someone other than a spouse), or using crypto for purchases. If the value of your crypto has dropped but you continue to hold it, that is considered an unrealised loss, and it cannot be claimed.
You Must Report the Loss Within 4 Years
To use a loss for future tax years, you must report it to HMRC within four years from the end of the tax year in which the disposal occurred. You can do this through your Self Assessment tax return or by writing directly to HMRC. Unreported losses beyond this time frame are not considered allowable and cannot be carried forward.
Losses Must Be Used at the First Opportunity
HMRC expects any reported crypto losses to be used against taxable gains as soon as they become applicable. You cannot choose to defer a loss to save it for a future year if you already have gains that exceed the CGT allowance. The loss will be automatically applied to reduce your taxable gains in the current year.
No Claims for Transfers to Connected Persons
If you dispose of crypto by gifting or selling it to a connected person, such as a spouse, civil partner, or close family member, you generally cannot claim a loss unless you’re also offsetting a gain made with the same person. This rule prevents artificial loss generation between related parties.
Read More: Personal Income Tax On Crypto In The UK
Offsetting Losses: How It Works
Once you’ve realised a loss on your crypto investments, the next step is understanding how to apply it. HMRC allows you to offset these losses against your capital gains, but only after your total gains exceed the annual CGT allowance. If you don’t have gains to offset in the current year, you can carry those losses forward to future tax years.
Let’s walk through a basic example to show how this works in practice.
Example: Tax Loss Harvesting in Action
Imagine you sold your Solana (SOL) investment for a profit in the 2024-25 tax year. You bought 100 SOL for £800 and later sold them for £1,800, resulting in a capital gain of £1,000.
In the same tax year, you also sold your Avalanche (AVAX) tokens at a loss. You originally bought them for £2,000, but sold them for only £1,200, giving you a capital loss of £800.
Here’s how this works:
- Capital Gain from SOL: £1,000
- Capital Loss from AVAX: £800
- Net Capital Gain: £1,000 – £800 = £200
Because the total gain is now just £200, and well below the £3,000 CGT-free allowance for 2024–25, you will not owe any Capital Gains Tax.
Understanding HMRC’s 30-Day Rule (Bed and Breakfasting Rule)
Tax loss harvesting isn’t as simple as selling at a loss and immediately buying back the same crypto. HMRC has strict rules to prevent investors from creating artificial losses just to reduce their tax bill. One of the most important of these is the 30-day rule, often called the bed and breakfast rule.
This rule ensures that any attempt to sell and quickly repurchase the same or a substantially similar asset will not result in a valid loss for Capital Gains Tax purposes. Instead, HMRC adjusts the cost basis of the asset, so the loss you tried to claim is either reduced or disallowed.
The Same-Day Rule
If you sell and repurchase the same crypto on the same day, HMRC requires you to match the sale with the cost of the crypto you bought on that day. This means the disposal is paired with the new purchase, and the loss or gain is calculated using the price of the repurchased asset, not your original cost basis.
The 30-Day Rule (Bed and Breakfasting)
If you buy back the same crypto within 30 days of selling it at a loss, HMRC will ignore your original purchase price. Instead, it will match your sale to the cost of the repurchased tokens, altering your gain/loss calculation.
For example, if you sold 2 Chainlink (LINK) tokens at a loss on 1 June and bought the same number of tokens back on 10 June, HMRC would apply the 30-day rule. You wouldn’t be able to claim the original loss in full. The cost basis would reset based on the 10 June repurchase.
Why It Matters for Tax Loss Harvesting?
These rules prevent you from temporarily selling crypto just to harvest a tax loss and then immediately rebuying it. To claim a loss properly, you need to wait more than 30 days before repurchasing the same asset. Failing to do so can result in that loss being disallowed or postponed, reducing the effectiveness of your tax strategy.
Read More: How To Save Crypto Taxes In The UK
Important Deadlines for Tax Loss Harvesting
To benefit from tax loss harvesting, timing is everything. HMRC has strict rules around which financial year your crypto disposals apply to, and missing these deadlines can delay your ability to claim tax relief.
Here are the key dates every UK crypto investor should know:
5 April: End of the Tax Year
The UK tax year runs from 6 April to 5 April the following year. To apply your crypto losses to the current year’s gains, you must dispose of the asset on or before 5 April. If you sell after this date, the loss will apply to the next tax year, not the current one.
31 January: Tax Filing Deadline
If you’re submitting your Self Assessment tax return online, 31 January is the final deadline to report your crypto gains and losses for the previous tax year. Any reported losses can be used to reduce that year’s CGT liability or carried forward, as long as they’re filed correctly.
Best Practices for Effective Tax Loss Harvesting
Tax loss harvesting can significantly reduce your crypto tax bill, but only if done correctly. Many investors miss out on savings by overlooking key details or timing their trades poorly. Following these best practices can help you make the most of this strategy without falling foul of HMRC rules.
Maintain Accurate Transaction Records
Always keep a detailed record of every crypto transaction. This includes the date, the amount, the value in GBP at the time of disposal, and any associated fees. Proper records will make it easier to calculate your gains and losses and ensure you have proof if HMRC ever questions your filings.
Track Realised and Unrealised Gains
It’s important to understand the difference between gains you’ve already realised and those that are still on paper. Only realised losses count for tax loss harvesting. Using a tax calculator or portfolio tracker can help you monitor both in real-time, so you don’t accidentally incur a loss that isn’t usable.
Avoid Bed and Breakfast Mistakes
Don’t repurchase the same crypto too soon after selling at a loss. Waiting at least 31 days before buying back the same asset ensures your loss remains valid for CGT purposes. If you plan to re-enter a position quickly, consider alternative assets that are not substantially similar.
Use Crypto Tax Software
A tax tool like KoinX can automate much of the process. From tracking disposals and calculating gains to generating reports for HMRC, the right platform can save you time and reduce the risk of error. It’s especially helpful if you’re managing multiple wallets and exchanges.
How KoinX Helps You With Crypto Tax Loss Harvesting?
Staying compliant with HMRC while trying to reduce your tax bill can be time-consuming, especially if you’re managing multiple wallets, exchanges, or high trade volumes. That’s where KoinX steps in. It simplifies the entire tax loss harvesting process by offering accurate tracking, reporting, and insights tailored for UK investors.
Automatic Transaction Classification
KoinX automatically classifies each of your transactions—whether it’s a trade, disposal, airdrop, or staking reward—based on HMRC tax treatment. This ensures that gains and losses are recorded correctly, which is critical for identifying tax-saving opportunities like harvesting losses before the year ends.
Real-Time Gain and Loss Tracking
With KoinX, you can monitor your realised and unrealised gains and losses in real time. This helps you make smarter decisions about when to dispose of assets and how to apply losses efficiently. You’ll always know whether you’re nearing your CGT threshold or could benefit from harvesting a loss.
HMRC-Compliant Tax Reports
KoinX generates Capital Gains Tax reports that align with UK tax laws and filing formats. These reports include accurate loss tracking, carry-forward summaries, and asset-specific performance, making it easier to complete your Self Assessment or share details with your accountant.
Support for Loss Carry-Forward and Year-End Planning
Planning to carry forward losses into future years? KoinX keeps a detailed record of your unclaimed losses and automatically applies them in your next tax cycle when applicable. It’s especially useful as you approach the end of the financial year and need clarity on how your losses impact your future liability.
Don’t let your crypto losses go unclaimed. Use KoinX to record, report, and carry forward every allowable loss with ease.
Conclusion
Tax loss harvesting is a valuable strategy for UK crypto investors looking to minimise their Capital Gains Tax bill. By identifying and realising losses before the financial year ends, you can significantly reduce your taxable gains, especially with the CGT allowance now reduced to £3,000.
However, staying compliant with HMRC rules requires careful planning, accurate record-keeping, and a clear understanding of when and how to claim your losses. That’s why using a reliable tool like KoinX can make all the difference. It not only tracks your crypto activity across exchanges and wallets but also ensures your tax reports are accurate and fully HMRC-compliant, so you can focus on investing while staying on the right side of the law.
Frequently Asked Questions
Can I Repurchase The Same Crypto After Harvesting Losses?
Yes, but timing matters. If you repurchase the same crypto within 30 days of selling it at a loss, HMRC’s 30-day rule will apply. This means the loss may not be allowed or will be adjusted based on the repurchase price. To ensure your loss remains valid for tax purposes, it’s best to wait at least 31 days before buying the same asset again.
Do I Need To Report Losses Under The CGT Allowance?
Even if your total gains fall below the £3,000 CGT allowance, you should still report your losses. HMRC requires you to report any realised loss if you want to carry it forward to future tax years. Failing to report within four years means you lose the ability to use that loss later. Reporting early ensures your future gains can be offset with unused losses.
How Long Can I Carry Forward Crypto Losses?
You can carry forward crypto losses indefinitely, but only if they’re reported to HMRC within four years from the end of the tax year when the loss occurred. Once reported, these losses can be used in any future tax year to offset capital gains. It’s important to keep clear records so you can apply the losses accurately when needed.
What If I Give Crypto To A Spouse Or Family Member?
If you gift crypto to your spouse or civil partner, it’s treated as a no-gain, no-loss transaction and doesn’t trigger Capital Gains Tax. However, if you gift crypto to other family members or connected persons, HMRC does not allow you to claim a loss unless you’re also offsetting a gain made with the same individual. Gifting should be planned carefully to avoid losing tax relief opportunities.
