Can I Reclaim Tax If I Lost Access to My Crypto Wallet?

Introduction

Losing access to a cryptocurrency wallet is one of the biggest risks faced by crypto investors. Whether due to forgotten passwords, damaged hardware, or misplaced private keys, once access is lost, your funds are effectively gone. This can be devastating — and it also raises a difficult question about tax.

If you paid Capital Gains Tax (CGT) on profits from crypto transactions in the past, can you reclaim that tax now that your coins are permanently lost? The short answer is that you might be able to claim a negligible value deduction if you can prove your crypto is worthless. However, the rules are strict, and HMRC requires solid evidence that the asset truly has no value or is beyond recovery.

This article explains how HMRC treats lost crypto, when a tax reclaim may be possible, and how to make a claim correctly.

How HMRC Views Lost Cryptocurrency

HMRC treats cryptocurrency as an asset, not as money. Like shares or property, you are taxed on any gains when you sell, exchange, or dispose of your crypto.

If you lose access to your wallet, your coins technically still exist on the blockchain, but you cannot use or transfer them. HMRC therefore does not automatically consider lost crypto as a disposal for tax purposes.

However, if you can show that your crypto is permanently inaccessible or worthless, you can apply for a negligible value claim, which allows you to treat it as if it had been sold for £0. This can create a capital loss, which you can then use to offset other capital gains or reduce future tax bills.

When You Can Make a Negligible Value Claim

To make a negligible value claim, you must prove that:

• You owned the crypto asset at the time of loss.

• The asset now has no value or cannot be recovered.

• There is no reasonable prospect of regaining access.

HMRC will only accept a claim if it is clear that the asset has become worthless or permanently inaccessible — not simply if the market price has fallen or if you have temporarily lost your password.

Typical situations that may qualify include:

• Losing access to a wallet because the private keys were permanently destroyed.

• A hardware wallet being damaged beyond recovery with no backup available.

• The exchange or platform holding your crypto collapsing and your funds being unrecoverable.

Example Scenario

Imagine you bought £20,000 worth of Bitcoin and stored it on a hardware wallet. A few years later, the device is damaged, and you lose your private keys. Without backups, there is no way to recover the coins.

You can submit a negligible value claim to HMRC, effectively treating the crypto as sold for £0. This creates a capital loss of £20,000, which you can use to offset other capital gains (for example, profits from selling shares or property).

If you made £30,000 of gains elsewhere in the same tax year, you could use the £20,000 loss to reduce your taxable gain to £10,000, saving up to £4,000 in CGT if you are a higher-rate taxpayer.

How to Make a Negligible Value Claim

You can make a negligible value claim in one of two ways:

1. Through your Self Assessment tax return, or

2. By writing directly to HMRC if you do not usually complete a tax return.

Your claim must include:

• A clear description of the asset (for example, the type of cryptocurrency and how it was stored).

• The date you originally acquired it.

• The amount you paid for it.

• The date you believe it became worthless or irrecoverable.

• An explanation of why the asset has no value and evidence to support your claim.

If HMRC accepts your claim, the loss is treated as having occurred on the date you specify, and you can use it to offset gains from the same tax year or carry it forward to future years.

Evidence You May Need to Provide

Because cryptocurrency losses are hard to verify, HMRC expects strong evidence that the coins are permanently lost. This could include:

• Proof of ownership, such as purchase records or transaction IDs.

• Evidence of wallet access being lost (for example, loss of private keys or destruction of a hardware wallet).

• Correspondence with crypto exchanges showing that funds are unrecoverable.

• Any supporting documentation from technical experts or blockchain analysis services confirming the loss.

The more detailed and credible your evidence, the more likely HMRC is to accept your claim.

When You Cannot Claim

You cannot make a negligible value claim if:

• You simply forgot your password but still have a chance of recovery.

• The value of your crypto has fallen sharply due to market changes.

• You sold the crypto at a loss but did not make a formal disposal for tax purposes.

• You have no evidence to prove ownership or loss.

HMRC will not accept claims based on speculative or temporary losses. The key requirement is permanent inaccessibility or zero value.

Inheritance and Lost Crypto

If a person dies owning cryptocurrency that cannot be accessed, it still forms part of their estate for Inheritance Tax purposes. The executor must report its estimated value, even if recovery is unlikely.

If evidence later shows that the coins are irretrievable, a negligible value claim may be made by the estate to recognise the loss.

How Long You Have to Make a Claim

You generally have four years from the end of the tax year in which the asset became worthless to make a negligible value claim. For example, if your crypto became irrecoverable in 2024 25, you have until 5 April 2029 to submit your claim.

The earlier you act, the sooner you can use the loss to reduce your tax bill.

The Role of an Accountant

An accountant or tax adviser can help you:

• Determine whether your crypto qualifies for a negligible value claim.

• Gather the right evidence to support your application.

• File your claim correctly through Self Assessment or directly with HMRC.

• Calculate how your losses can be used to offset other gains.

Given the complexity of crypto taxation, professional advice can save you time and ensure your claim is valid.

Example of a Rejected Claim

If you lose access to an exchange account but the platform is still operating, HMRC may reject your claim on the grounds that recovery is still possible. Similarly, if you misplace a password but have not attempted recovery through backups or support channels, HMRC will not view this as permanent loss.

Only once all reasonable recovery attempts have failed and the coins are effectively gone will a negligible value claim be considered.

Conclusion

You cannot automatically reclaim tax if you lose access to your cryptocurrency wallet, but you may be able to make a negligible value claim if you can prove that your crypto is permanently inaccessible or worthless. If accepted, the loss can offset other capital gains and reduce your tax bill.

Keep detailed records of your crypto holdings, purchase history, and any events leading to the loss. If you believe your crypto is gone for good, seek professional advice before filing a claim with HMRC to ensure it meets their strict requirements.