Last updated on 7 August 2026
Crypto in a Bear Market: How to Use Losses to Lower Your UK Tax Bill
Crypto losses in a bear market can help reduce your UK tax bill. HMRC allows investors to claim capital losses on crypto, which can offset current or future gains. This means even a bad trading year can lower what you owe in tax later on, if you report correctly and keep good records.
A bear market is tough. Prices fall, portfolios shrink, and many investors panic-sell their crypto. From a tax perspective, this situation can actually work in your favour. In the UK, HMRC classifies crypto as a capital asset, so any sale, trade, or use of your crypto counts as a disposal. When you dispose of it for less than your purchase price, that shortfall is considered a capital loss.
If you need help reporting your crypto losses or calculating your tax position, get expert help from Crypto Accountants. Our experts ensure your crypto taxes are precise, fully compliant, and strategically optimised to help you save more.
How HMRC Treats Crypto Losses?
Under UK tax law, crypto assets fall under Capital Gains Tax (CGT) rules. Whenever you dispose of your crypto, whether by selling it, exchanging it for another token, spending it, or gifting it to anyone other than your spouse, you need to determine if the transaction resulted in a gain or a loss.
If the selling price is lower than what you originally paid (including transaction fees), you have a capital loss.
Example
You bought 1 Ethereum for £2,000. A few months later, you sell it for £1,200. You made an £800 loss.
This £800 can be used to reduce your taxable crypto gains, either in the same year or in future years.
If you’re unsure what counts as a disposal, crypto-to-crypto trades in the UK can help you understand that many investors miss these Capital Gains Tax (CGT) triggers without realising it.
Claiming Your Crypto Losses with HMRC
If you have realised a loss (meaning you sold or swapped the asset), you must report it to HMRC to claim it officially. You will typically report this information through your Self Assessment tax return. HMRC also allows you to claim losses for up to four years after the tax year in which they occurred.
For instance, if your crypto losses happened during the 2021–22 tax year, you have until 5 April 2026 to report them.
Once HMRC registers your loss, it becomes available to offset future gains, this is called a “carry-forward loss.”
Carry-Forward Losses: How They Help You Save Later
Carry-forward losses are one of the most useful tax tools for crypto investors.
If you don’t have any gains to offset right now, you can carry those losses forward indefinitely and use them in future tax years when you do make gains.
Example
You made a £5,000 crypto loss in 2023–24. You had no gains that year.
In 2025–26, you sell Bitcoin and make a £10,000 gain.
You can use your £5,000 loss from 2023–24 to reduce your taxable gain to £5,000.
This can lower your tax bill, since the UK Capital Gains Tax allowance has dropped sharply in recent years (currently £3,000 for 2025–26).
To understand how to make the most of that allowance, check out our guide on how to use your £3,000 CGT allowance effectively in crypto.
Using Losses Within the Same Tax Year
If you have both gains and losses in the same tax year, you can offset them immediately.
For example, you sold one NFT at a £2,000 gain and another at a £3,000 loss.
Your total capital result is a £1,000 loss. You won’t pay any tax and can carry that loss forward.
This is why tracking every crypto transaction, not just the profitable ones, is essential.
When a Crypto Loss Counts for HMRC
HMRC only recognises “realised” losses.
If your crypto has dropped in value but you still hold it, it’s an unrealised loss, it doesn’t count yet.
However, there’s an exception for negligible value claims.
If your tokens are now worthless or you lost access to them (for example, a rug pull, exchange collapse, or lost private keys), you can claim them as having negligible value.
You will need to write to HMRC and explain:
- What happened
- The date it became worthless or inaccessible
- The asset’s name and quantity
Once accepted, HMRC treats it as if you sold and re-bought the asset at £0, creating a claimable capital loss.
Importance of Keeping Proper Records
Many investors lose tax opportunities because they fail to keep good records. HMRC requires clear documentation of every disposal, including:
- Transaction dates
- Amount in crypto and GBP
- Exchange used
- Transaction fees
- Wallet addresses (if possible)
Without accurate data, it’s hard to prove a loss.
Good recordkeeping also helps if you use crypto across multiple wallets or exchanges. Some tax software tools can help (e.g., Koinly, Accointing), but always double-check against HMRC’s share pooling rules.
Avoid These Costly Crypto Tax Errors
- Skipping Loss Claims: Don’t ignore your trading losses; if you don’t report them, you can’t use them to offset future gains.
- Mixing Up Income and Gains: Rewards from staking or airdrops count as income. Selling those tokens later is a capital transaction; treat them separately.
- Forgetting GBP Conversion: HMRC only accepts values in pounds. Record the GBP market value for every transaction at the time it happens.
- Missing the Reporting Window: You have up to four years to claim losses, but it’s best to report them right away through your Self Assessment.
Practical Tips for UK Crypto Investors
- Record every trade or transaction in GBP value at the time.
- Report your losses even if you don’t owe tax that year.
- Use carry-forward losses to lower future CGT.
- File your Self Assessment early to avoid penalties.
Even small investors benefit from understanding these rules. The crypto market is volatile, but smart recordkeeping can turn a bear market into a future tax advantage.
Final Thoughts
A bear market can be tough, but from a tax perspective, it’s not all bad news. By correctly recording and reporting your crypto losses, you can lower future tax bills and protect your portfolio for the long term.
Our Crypto Tax Advisory Service helps you do exactly that. We review your trades, calculate your gains and losses, and ensure full HMRC compliance, so you never pay more tax than you should when the market turns bullish again.
FAQs
Can I offset crypto losses against my salary or other income?
No. Crypto losses can only be used to offset capital gains, not regular income like wages or rental income.
What happens if my exchange shuts down and I lose my coins?
You may be able to make a negligible value claim with HMRC, allowing you to record the loss officially and use it to offset future gains.
How long can I carry forward crypto losses?
Indefinitely. Once HMRC accepts your claim, you can use those losses to reduce capital gains in any future tax year.
What if I lost access to my wallet?
If you can prove the loss (e.g., missing private keys, lost hardware), you can still apply for negligible value treatment. HMRC may ask for evidence.
