TikTok traders face capital gains tax clampdown

Sara White, Editor, Business & Accountancy Daily

HMRC investigations into underpaid capital gains tax (CGT) have more than tripled in the past year with TikTok traders and crypto investors targeted

Over 14,223 investigations into suspected underpayment of capital gains tax (CGT) were completed by HMRC in the last 12 months, up more than threefold from 4,564 in the previous year,  revealed analysis by UHY Hacker Young.

A total of £202.4m in underpaid CGT tax was recovered from those investigations in the last year, albeit only generating increase from £180.8m in the previous 12 months, despite spreading the net wider.

As part of its wider efforts to ensure CGT compliance, HMRC has been reviewing the tax affairs of small-scale amateur traders and investors who have bought into speculative assets like cryptocurrency and meme-shares.

The latest HMRC activity has seen letters sent to online platform sellers telling them they must disclose any unpaid tax within 30 days of receipt of the letter or risk facing an HMRC inquiry, which can result in punitive penalties and interest charges on unpaid tax.

Many of these individuals, who first engaged with trading through Reddit and later TikTok and Instagram during lockdown, may lack the resources or awareness to track profits accurately and file a CGT return correctly. HMRC believes some may have made gains without paying the appropriate CGT.

Now that the tax authority has access to the first reports from online platforms about actual sales by sidehustlers and occasional sellers the risk of falling foul of tax rules has risen.

Brian Carey, tax partner at UHY Hacker Young, said: ‘With Gen Z embracing non-traditional investments like crypto and meme stocks, HMRC is concerned it is missing out on a lot of unpaid CGT.’

HMRC has intensified investigations into crypto assets in response to suspected widespread underreporting of crypto profits. This comes as the value of crypto soars following the election of president Trump in the US and a softer approach to regulation stateside.

In a climate of ever rising taxes, the recent cuts to the CGT allowance mean many more people could now be liable for additional tax.

In April 2023, the annual tax-free CGT allowance was slashed from £12,300 to £6,000. It halved again in April 2024 to just £3,000, bringing even more individuals into the scope of CGT, including those who may not have considered their tax obligations on investments or property sales.

Landlords also face increased scrutiny as HMRC steps up efforts to recover under paid CGT. Sales of buy-to-let properties are on the rise. Many landlords are now being targeted for underreporting gains on sales of their properties by inflating their costs. This is only likely to intensify when Making Tax Digital for Income Tax reporting is rolled out to landlords earning more than £50,000 in annual income from rental earnings.

HMRC is also cracking down on share trading through offshore accounts. Global data-sharing agreements - such as the Common Reporting Standard and UK double taxation agreements - give tax authorities unprecedented access to offshore accounts in jurisdictions like the Bahamas and Panama. Capital gains that were once out of sight are now firmly on HMRC’s radar.

Carey added: ‘HMRC’s crackdown on unpaid CGT is a stark reminder that your tax obligations cannot be ignored, no matter the source of your profits.’