Losing Your Crypto Keys: The HMRC Negligible-Value Claim, Worked

Losing access to a wallet — bad backup, lost seed phrase, hardware failure, phishing drain — is one of the most common and most painful situations UK crypto users face. There is a route to tax relief under TCGA 1992 s.24 (the negligible-value claim), but HMRC's position on "lost" crypto is stricter than most people expect. Here is what actually qualifies, and how to file a claim.

The core rule: TCGA 1992 s.24

Section 24 of the Taxation of Chargeable Gains Act 1992 lets you claim that an asset you still own has become of negligible value. The effect is a deemed disposal at nil consideration on the date of the claim (or an earlier date if you specify one, up to two tax years before the claim), creating an allowable capital loss equal to your acquisition cost.

The key conditions:

- **You must still own the asset.** If the asset has been genuinely lost — you no longer have any rights over it — the claim does not apply, because there is nothing to make a deemed disposal of. - **The asset must have become worthless.** Not "difficult to sell" or "temporarily illiquid" — actually worthless with no realistic prospect of recovery. - **The claim must be made** in a self-assessment return or by written notice.

HMRC's February 2019 statement on lost keys

HMRC's public position, first set out in the February 2019 policy paper on cryptoassets and repeated in the Cryptoassets Manual, is that:

> Losing a private key does not amount to a disposal for CGT purposes. The individual is still the owner of the asset. But if the person can show there is no prospect of recovering the private key or accessing the cryptoassets held in the corresponding address, they can make a negligible value claim.

Two consequences flow from this. First, you cannot claim a straight capital loss just because you lost the seed phrase — you still own the coins from HMRC's perspective. Second, you can claim a negligible-value deemed disposal if you can evidence that the coins are irretrievable.

Read the HMRC statement in the context of CG13120 and CRYPTO22400.

What "no prospect of recovery" looks like

Reasonable evidence to support the claim:

- **Seed phrase never written down or destroyed** — you can prove you controlled the address (past transactions signed from it) but no longer have any means to sign. - **Hardware wallet permanently damaged with no backup** — evidence of purchase, evidence of loss. - **Address drained by an exploit** — coins are no longer at your address (see next section on drained wallets).

Weaker evidence that HMRC has historically rejected:

- "I forgot my password to my Bitcoin.com wallet" without any attempt at recovery. - "I lost my Ledger but I might have a backup somewhere." - "I don't remember which exchange I used."

Take the claim seriously as an evidentiary exercise; keep dated notes and photographs.

Drained wallets and stolen crypto

If your wallet was drained by a scam or phishing attack, the coins are no longer at your address — they have been moved to the attacker's wallet. Under CG14800 and following, that is a disposal by you (an involuntary one), and the receipt of consideration is nil. This gives an allowable capital loss equal to your cost basis, without needing a s.24 negligible-value claim at all.

You should keep evidence: the scam transaction hash, correspondence with the exchange or Ledger about the incident, and any Action Fraud reference number. See <a href="/blog/crypto-lost-stolen-negligible-value-uk">crypto lost stolen negligible value UK</a> for the fuller drained-wallet story.

Worked example

- 2019: bought 2 BTC for £14,000 total. Sent to a self-custody wallet. - 2022: the seed phrase was written on paper stored in a house fire; the paper is destroyed. The BTC is at an address only reachable with the lost seed. No offsite backup. - 2026/27: you make a negligible-value claim under TCGA 1992 s.24.

Deemed disposal on the date of the claim: 2 BTC at nil consideration. Allowable capital loss: £14,000 (the original cost basis).

You can specify an earlier deemed disposal date, up to two tax years before the claim, if the BTC was already worthless-to-you (i.e., unreachable) at that earlier date. The earlier date lets you offset the loss against gains in that earlier year via amended returns.

The £14,000 loss reduces net gains in the tax year of the claim (or in the earlier specified year), before the AEA. If there are insufficient gains, the loss carries forward under TCGA 1992 s.2A until used.

How to file the claim

On your Self Assessment SA108 for the 2026/27 tax year:

- Enter the deemed disposal in the "Losses in the year" section. - Attach a white-space narrative explaining: the asset (BTC address), the acquisition history, the loss event, the date and evidence of worthlessness, and that you are claiming under s.24. - Retain the underlying evidence (photos, exchange screenshots, correspondence) for six years past the filing deadline.

Claims HMRC will reject

- Coins that could still recover value — a project that is dead but has an active revival community, or a token that is temporarily untradeable but might list again. - "Lost" wallets where you actually still know the seed but cannot be bothered to recover. - Coins on an exchange that went bankrupt — a bankruptcy claim gives you a right to a portion of the estate, which has some value; s.24 may only apply once the bankruptcy pays out at final settlement below cost basis. See <a href="/blog/crypto-losses-hmrc">crypto losses HMRC</a>.

Filing pipeline with CryptoLens

1. Import the wallet history via <a href="/import">/import</a>, so the cost basis is computed correctly from actual transactions. 2. Mark the affected coins as "negligible value claim" in <a href="/tax">/tax</a> settings — the tool creates a nil-proceeds disposal on the date you specify. 3. Export the CSV with the disposal row, and prepare the SA108 white-space narrative separately. 4. Consider talking to <a href="/accountants">an accountant partner</a> for anything above £5,000 of claimed loss — the evidence bar is real.