What Happens If I Was Scammed or Hacked: Can I Claim a Tax Loss

At Towerstone, we provide specialist crypto accountancy services for UK investors and businesses. We have written this article to explain when losses may be claimed, helping you understand the tax and reporting position.

This is one of the hardest conversations I have with clients and in my opinion one of the most emotionally charged areas of crypto tax. People usually come to me after the fact. The money has gone. The wallet is empty. The exchange account has been drained. They are angry, embarrassed, stressed, and often convinced that at least the tax system should recognise what has happened.

From experience, I can tell you that HMRC’s approach to scams and hacks is not driven by sympathy. It is driven by legal definitions. That does not mean there is no relief available, but it does mean expectations need to be realistic.

In this guide, I am going to explain what happens from a UK tax perspective if you were scammed or hacked, whether you can claim a tax loss, when HMRC will accept it, when it will not, and what evidence you need. I will also share the most common mistakes I see and what I advise clients to do when the worst has already happened.

The Emotional Versus Tax Reality

Before we get into technical rules, it is important to separate two things.

What feels fair

What the tax law actually allows

From experience, these are often very different.

Losing crypto through a scam or hack feels like a real financial loss because it is. However, tax law does not automatically treat every financial loss as a tax loss.

HMRC does not ask whether you feel poorer. It asks whether a recognised taxable event has occurred.

Understanding that distinction is the key to avoiding further frustration.

How HMRC Views Crypto for Tax Purposes

In the UK, cryptoassets are treated as assets rather than currency.

That means capital gains tax rules apply to most individuals and income tax rules apply in certain scenarios.

Guidance on this is issued by HM Revenue & Customs and published via GOV.UK.

The crucial point is this. Capital gains tax looks at disposals. Losses are only recognised when there is a disposal in the eyes of the law.

This is where scams and hacks become complicated.

The Core Question HMRC Asks

When crypto is lost, HMRC asks one central question:

Has there been a disposal?

If the answer is yes, a capital loss may be available.
If the answer is no, there is usually no immediate tax relief.

From experience, most disagreements with HMRC come down to how this question is answered.

What Counts as a Disposal for Crypto?

HMRC treats the following as disposals:

Selling crypto for fiat

Swapping one crypto for another

Spending crypto

Gifting crypto to someone other than a spouse or civil partner

Losing ownership in a way that is legally recognised

Simply losing access or being the victim of theft does not automatically count as a disposal.

That is the harsh reality many people struggle with.

If You Were Scammed: The Tax Position

Scams come in many forms.

Common examples include:

Fake investment platforms

Phishing attacks

Impersonation scams

Romance scams involving crypto

Fraudulent token launches

Fake recovery services

From experience, the tax treatment depends on what actually happened to the crypto.

Giving Crypto Away Under a Scam

In many scams, the victim actively sends crypto to another wallet, believing it to be legitimate.

From HMRC’s perspective, this is often treated as a disposal.

You transferred ownership of the asset, even if you were misled.

In these cases:

The disposal is usually treated as occurring at market value

A capital loss may arise

That loss may be claimable for capital gains tax

However, this is not automatic.

HMRC will look at:

Whether the transfer was voluntary

Whether ownership passed

Whether the asset still exists

Whether you retained any control

From experience, scams where crypto is sent to an external wallet are more likely to result in an allowable capital loss than hacks where access is simply lost.

If You Were Hacked: The Tax Position

Hacks are treated differently.

If a hacker gains access to your wallet or exchange account and removes crypto without your consent, HMRC often takes the view that there has been no disposal.

Why?

Because you did not choose to transfer ownership. You simply lost possession.

From a tax perspective, that distinction matters.

In many hacking cases:

No disposal is recognised

No immediate capital loss is allowed

The crypto is treated as still owned but inaccessible

This feels deeply unfair, and from experience, it is one of the hardest explanations to give.

Why HMRC Takes This View

HMRC’s reasoning is based on legal ownership rather than practical access.

If you still legally own the crypto, even if it is unrecoverable, HMRC may argue there has been no disposal.

Capital gains tax law was not designed with digital theft in mind, and in my opinion, this is where it shows its age.

The Concept of Negligible Value Claims

This is where some relief may be available.

If crypto becomes effectively worthless or irrecoverable, you may be able to make a negligible value claim.

A negligible value claim treats the asset as disposed of for zero value.

This can create a capital loss.

However, HMRC applies this very cautiously.

When a Negligible Value Claim May Apply

From experience, HMRC may accept a negligible value claim if:

The crypto is permanently unrecoverable

There is no realistic prospect of recovery

The asset has effectively lost all value

Evidence supports the claim

Examples might include:

Tokens tied to a collapsed blockchain

Assets locked in a protocol with no recovery mechanism

Crypto rendered unusable by a permanent hack

However, stolen crypto is not automatically negligible in HMRC’s eyes because it still exists and may still have value.

This is a subtle but critical distinction.

Evidence HMRC Expects

HMRC does not take these claims on trust.

You should expect to provide evidence such as:

Police reports or crime reference numbers

Reports to Action Fraud

Exchange correspondence

Blockchain transaction records

Wallet addresses

Expert statements where relevant

From experience, vague explanations are rarely accepted.

If You Were Phished or Tricked

Phishing sits somewhere between a scam and a hack.

If you signed a transaction believing it to be legitimate, HMRC may argue that you disposed of the crypto voluntarily, even if under false pretences.

In these cases, a capital loss is more likely to be accepted.

Again, evidence matters.

What About Rug Pulls and Collapsed Projects?

This is very common.

You buy tokens. The developers disappear. Liquidity vanishes. The token becomes worthless.

In these cases:

You usually still own the token

It may have no practical value

A negligible value claim may be appropriate

From experience, HMRC is more receptive to negligible value claims for failed projects than for stolen assets.

Can You Claim an Income Tax Loss?

Most individuals cannot claim an income tax loss for scams or hacks.

Income tax losses usually only apply where there is a trade.

If your crypto activity is treated as investment rather than trading, losses fall under capital gains tax rules only.

From experience, trying to claim crypto scam losses as income tax deductions is almost always rejected.

What If the Crypto Was Income Originally?

This adds another layer of complexity.

If you received crypto as income, for example staking rewards or payment for services, and later lost it to a scam or hack, the original income tax charge still stands.

This is particularly painful.

You may have paid income tax on crypto that no longer exists.

From experience, this is one of the strongest arguments for setting aside tax funds immediately rather than leaving everything in crypto.

Timing of the Loss

Another critical point is timing.

Losses are claimed in the tax year the disposal is treated as occurring.

If you are relying on a negligible value claim, you may be able to choose the tax year, subject to HMRC agreement.

This flexibility can be helpful when offsetting gains.

How to Claim a Capital Loss

If a capital loss is available, it must be reported.

This involves:

Including it in your capital gains computation

Claiming it on your self assessment return

Carrying it forward if not used

Losses must usually be claimed within four years of the end of the tax year in which they arose.

From experience, missed deadlines cause unnecessary lost relief.

What HMRC Will Challenge

HMRC is particularly sceptical of:

Claims with no evidence

Losses claimed years later with vague explanations

Situations where crypto still exists on chain

Claims that rely on emotional arguments rather than legal ones

In my opinion, clarity and documentation matter far more than storytelling.

Common Mistakes I See

From experience, the most common issues include:

Assuming all scams automatically create tax losses

Claiming hacking losses without a disposal

Failing to keep transaction evidence

Claiming losses in the wrong tax year

Forgetting to claim losses at all

Assuming HMRC will apply common sense rather than law

These mistakes often compound an already stressful situation.

What If HMRC Rejects the Claim?

If HMRC rejects a loss claim, options may include:

Providing further evidence

Making a formal appeal

Requesting a review

Seeking professional representation

From experience, poorly prepared claims fail. Well documented claims often succeed or reach compromise.

Voluntary Disclosure Still Matters

Even where crypto has been lost, HMRC still expects disclosure of past gains and income.

Being scammed does not remove earlier tax obligations.

However, honest disclosure and cooperation significantly reduce penalties.

From experience, HMRC is far more pragmatic with people who engage properly.

My Honest View From Experience

In my opinion, the tax system is poorly equipped to deal with crypto crime. It was not designed for irreversible digital theft.

That does not mean relief is impossible, but it does mean it is limited and technical.

The hardest part for most people is accepting that financial loss does not always equal tax loss.

From experience, the people who cope best are those who focus on what is achievable rather than what feels fair.

Practical Advice if You Have Been Scammed or Hacked

If this has happened to you, my advice is:

Do not panic and do not ignore it

Preserve all evidence immediately

Report the incident where appropriate

Document what happened clearly

Reconstruct transaction history

Seek advice before filing

Be realistic about what relief is available

In my opinion, trying to force a loss where the law does not support it often creates more stress.

Where this leaves you

So what happens if you were scammed or hacked and can you claim a tax loss?

Sometimes yes, sometimes no.

If ownership passed, a capital loss may be available.
If access was lost but ownership remained, relief may be limited.
Negligible value claims can help in some cases, but they are not guaranteed.

From experience, this is one of the most difficult areas of crypto tax emotionally and technically.

The best outcome comes from understanding HMRC’s framework, gathering evidence, and approaching the situation calmly and honestly.

Losing crypto is painful enough. Getting the tax position right is about preventing that pain from being made worse.

If you would like to explore related investing and crypto guidance, you may find What happens if my crypto exchange is based outside the UK and What happens to cryptocurrency when someone dies useful. For broader investing context, visit our stocks and shares guidance hub.