What counts as an ICO investor loss in UK?
Many investors in initial coin offerings (ICOs) assume any fall in token value is a straightforward capital loss. The UK tax position depends on how the token was acquired, what happened to the token and whether the loss is capital or trading. For ICO investor loss relief to apply the loss must relate to the disposal or deemed disposal of a cryptoasset originally acquired in an ICO and which has become negligible or worthless under HMRC rules.
Key indicators that a loss qualifies as an ICO investor loss:
- Token has permanently lost value because the issuer ceased operations, tokens were burned, or the market for the token vanished.
- No realistic route to recovery of value (e.g. issuer insolvent, project abandoned, smart contract irrevocably disabled).
- Investor has disposed of the token (sold, exchanged, gifted) or made a negligible value claim under UK capital gains rules.
- The original purchase was an investment rather than payment for goods or services (different tax treatment applies if tokens were received as payment or rewards).
Important exclusions:
- Tokens that temporarily collapse but retain some market and potential revival are not automatically negligible.
- Tokens used in a business as trading stock may fall within income/trading loss rules rather than capital loss relief.
What counts as a disposal for ICO tokens?
HMRC treats a disposal broadly: sale for fiat, exchange for another cryptoasset, gifting (unless to spouse in certain circumstances), spending as payment and certain reorganisations. A negligible value claim can be used to treat a token as disposed of when it becomes worthless even if no sale occurred.
How to claim ICO investor loss relief, step-by-step
The practical route for most individual ICO investors is to treat the token loss as a capital loss and, where appropriate, make a negligible value claim so the loss can be used against chargeable gains. The following step‑by‑step checklist follows HMRC processes and timing.
Step 1: confirm the loss is capital not trading
- Determine whether the transactions were undertaken as an investment (capital) or as part of a trade (income). Indicators of trading include: frequency of transactions, business-like organisation, profit-seeking with scale, and intention at acquisition. If doubt exists, seek specialist tax advice because the relief route differs.
Step 2: gather evidence of worthlessness
- Compile blockchain records, purchase receipts, exchange statements, KYC from the ICO sale, announcements from the issuer (e.g. insolvency filings), and communications showing project abandonment. Evidence must be contemporaneous where possible.
Step 3: consider a negligible value claim
- If tokens remain in a wallet but are effectively worthless, make a negligible value claim to treat them as disposed of on the date they became negligible. The claim should state the date and reasons, and be kept with tax records. If accepted, the investor is treated as having disposed of the token for nil proceeds.
Step 4: calculate loss and allocate to tax year
- Loss = allowable base cost (purchase price plus incidental costs) less any disposal proceeds (often zero). Allocate the loss to the tax year of the disposal or of the negligible value claim date.
Step 5: report on self assessment and carry or set off losses
- Report the capital loss in the Self Assessment return. Capital losses are normally carried forward to offset future gains. If the investor has other gains in the same tax year, losses can be set against them according to CGT rules.
Step 6: retain records and respond to HMRC queries
- Keep all evidence for at least six years. If HMRC queries the claim, supply the blockchain transaction history, issuer statements and other supporting documents.
HMRC rules on ICO token disposals and CGT
HMRC treats cryptoassets as property for tax purposes. Capital Gains Tax (CGT) applies to disposals of cryptoassets by individuals who are not trading. Key HMRC references:
Core rules to apply:
- Disposal events: selling for fiat, swapping for other tokens, using as payment, gifting (not to spouse) or certain reorganisations.
- Negligible value: a claim enables a deemed disposal at nil proceeds on the date the asset genuinely became worthless.
- Annual exemption: the annual CGT exempt amount (subject to tax year rules) must be considered before applying losses. For tax year 2026/27 the exempt amount will follow Government announcement—check the current limit before filing.
- Time limits: capital losses should be reported in the tax return for the year of disposal; claims to loss reliefs or to carry back require compliance with statutory deadlines—keep records for six years.
Distinguishing trading losses from capital losses for ICOs
This distinction is critical because: capital losses offset CGT; trading losses may offset income and follow different rules. The decision depends on facts and HMRC's trade tests.
Trading indicators (non-exhaustive):
- High frequency of disposals typical of a business.
- Organised investment activity: marketing, order books, formal business processes.
- Intention to make short-term profits from price movements.
Capital indicators (non-exhaustive):
- Purchase with long-term investment intent.
- Limited disposals, passive holding.
- Lack of business infrastructure.
If trading, losses will sit against income; if capital, they apply to CGT. For borderline cases, evidence and contemporaneous notes showing intention at acquisition are decisive.
Record-keeping and evidence HMRC needs for claims
HMRC expects rigorous records for cryptoasset disposals and claims. The following list covers the most defensible items:
- Proof of acquisition: receipts from the ICO, wallet addresses, transaction hashes showing purchase timestamp and amounts.
- Exchange records: deposit and withdrawal confirmations, trade confirmations, KYC documents tying accounts to the investor.
- Issuer communications: public announcements, GitHub updates, insolvency filings, emails confirming token burns or contract deactivation.
- Wallet exports: address export, private key custody evidence (if applicable) showing ongoing ownership and lack of transfer prior to claim.
- Market evidence: order book snapshots, exchange delisting notices, trading volume collapse supporting worthlessness.
- Negligible value claim documentation: written claim date, rationale, supporting evidence and calculation of base cost.
Practical notes on evidence:
- Store blockchain data and screenshots with timestamps. Use reputable independent archives or snapshots where possible.
- Keep contemporaneous notes explaining why tokens were treated as worthless. HMRC places weight on objective documentary evidence.
ICO investor loss relief process
ICO investor loss relief process
1️⃣
Confirm capital vs trading
Investment intent at purchase
2️⃣
Gather evidence
Blockchain, exchange, issuer proof
3️⃣
File negligible value claim
Treat as disposal at nil proceeds
4️⃣
Calculate loss
Base cost less proceeds
5️⃣
Report on Self Assessment
Use current CGT boxes
Mitigating Bitcoin tax exposure alongside ICO loss relief
ICO losses can form part of a broader crypto tax strategy. Mitigation should be legal and conservative to withstand HMRC scrutiny.
Tactics that commonly apply:
- Use capital losses strategically: offset realised capital gains in the same tax year before applying the annual exempt amount. If used optimally, ICO losses reduce CGT on disposals such as Bitcoin sales.
- Match disposals and rates: consider timing of Bitcoin disposals to years when ICO losses are available to set-off.
- Negligible value claim timing: if multiple worthless ICO tokens exist, making claims in the same tax year as planned gains can maximise immediate offset.
- Document transfers between wallets and platforms: avoid accidental taxable events. Moving tokens between personal wallets is not a disposal but must be evidenced.
- Consider spouse/partner strategies: transfers between spouses can be routed to use another partner's annual exemption and CGT bands—observe rules and keep records.
Risks and compliance considerations:
- Aggressive repurposing of losses (e.g. attempt to recharacterise trading losses as capital) invites challenge by HMRC.
- Cross-border issues arise if ICO was organised offshore. Relevant bilateral tax rules and residence tests may affect relief availability.
Comparative table: capital vs trading treatment for ICO losses
| Feature |
Capital loss (typical investor) |
Trading loss (business/trader) |
| Main relief route |
Offset CGT on gains; carry forward |
Offset against income subject to loss relief rules |
| Record requirements |
Proof of acquisition, disposal, market evidence |
Business records, invoices, receipts, trading history |
| Tax boxes and forms |
Self Assessment CGT sections; negligible value claim |
Self Assessment income pages; possible PAYE interactions |
When to treat ICO tokens as worthless: practical scenarios
- Issuer insolvency: clear insolvency filings or liquidation notices often justify negligible value claims.
- Smart contract destruction: if the contract is irrevocably disabled, tokens may be worthless even if still on-chain.
- Delisting and zero liquidity: sustained absence of markets and zero trading volume supports worthlessness but requires strong evidence.
Common errors to avoid
- Claiming negligible value without robust proof of worthlessness.
- Failing to distinguish investment tokens from utility tokens issued for services—different tax facts can change the relief.
- Ignoring the timing of claims; misdated claims can be rejected.
Practical examples and worked calculations
Example 1 — negligible value claim
- Purchase: 10,000 ICO tokens acquired at £0.10 each on 15 January 2018 (base cost £1,000).
- Project abandons and issuer enters liquidation; exchange delists and volume collapses to zero on 1 March 2025.
- Investor makes negligible value claim with supporting evidence dated 1 March 2025. Claim accepted.
- Disposal for CGT purposes treated as 1 March 2025 at nil proceeds. Capital loss = £1,000. Loss reported on 2025/26 tax return and used to offset gains in that tax year.
Example 2 — trading vs capital
- Investor A speculatively bought and sold ICO tokens daily on multiple exchanges with order books and marketing. HMRC considers this trading: losses fall under income rules and cannot be used against CGT.
- Investor B purchased tokens once as a long-term stake and kept them. Losses are capital.
Links to relevant HMRC documents and authoritative sources
Ventajas, riesgos y errores comunes
Advantages, risks and common mistakes
✅ Benefits / when to apply
- Immediate CGT relief against gains when a claim is properly evidenced and timed.
- Clear path to reduce tax on other disposals (e.g. Bitcoin profits) by using ICO losses.
- Record-driven process: strong documentary support usually secures HMRC acceptance.
⚠️ Risks / mistakes to avoid
- Weak evidence: reliance on anecdote or social media posts is insufficient.
- Misclassifying trading activity: heavy trading can convert an apparent capital loss into a trading loss with different tax outcomes.
- Ignoring deadlines: failure to report in the correct tax year or to retain records for six years invites penalties.
FAQ: frequently asked questions
Frequently asked questions
How is a negligible value claim made for ICO tokens?
A negligible value claim is a written statement kept with tax records explaining the date tokens became worthless and reasons; it is used to treat the asset as disposed of at nil proceeds for CGT.
Can ICO losses be set against other crypto gains such as Bitcoin?
Yes. If losses are capital losses, they can be offset against chargeable gains including gains on Bitcoin, subject to the annual exempt amount and CGT rules.
What evidence will HMRC accept for an ICO becoming worthless?
HMRC looks for objective evidence: exchange delisting notices, insolvency filings, issuer announcements, blockchain transactions and market data showing no liquidity.
Are ICO losses deductible from income tax?
Only if the activity qualifies as a trade. Most private investors’ ICO losses are capital and fall under CGT, not income tax.
How long must records be kept for claim support?
Keep all crypto tax records for at least six years from the relevant tax year to meet HMRC requirements.
Does gifting worthless ICO tokens trigger a disposal?
Gifting (except to a spouse) is a disposal and may crystallise a loss if the token has any residual value; worthless tokens may be handled instead via negligible value claim.
What if the ICO issuer is overseas?
Cross-border factors (issuer jurisdiction, investor residence) may complicate relief. Residence of the investor usually determines UK tax treatment, but seek specialist advice for mixed-jurisdiction cases.
Can losses be carried back to earlier tax years?
Usually capital losses are carried forward. Carry-back is limited and subject to specific CGT rules; professional advice is recommended on complex cases.
Your next step:
Your next step:
- Gather and secure all ICO purchase records, blockchain hashes and issuer communications in one folder.
- Decide whether a negligible value claim is appropriate and date it with supporting evidence.
- Complete the Self Assessment CGT sections for the relevant tax year and retain evidence for at least six years.