With recent price volatility and market pullbacks, this is a good time to pause and consider how the current market affects your tax position.

When crypto markets fall, many investors focus purely on portfolio value. However, Inland Revenue taxes realised income, not unrealised market sentiment. If you have already disposed of crypto in a prior year at a gain, the tax liability from that disposal does not disappear simply because the market has since declined.

In other words, if you sold assets in the 2025 income year and triggered taxable income, that tax is still payable even if the assets you retained have since dropped in value in 2026. A market downturn does not reverse a completed taxable event. We regularly see investors surprised by this. They feel poorer on paper and assume their tax bill should reduce accordingly. Unfortunately, that is not how the legislation operates. Tax is calculated based on realised disposals within each income year.

That said, downturns can create legitimate planning opportunities.

Where the market value of crypto holdings has fallen below their average cost, it may be appropriate to realise losses before year end by disposing of certain assets. If a genuine disposal occurs, those realised losses may be used to offset other taxable income in the same income year. This could include:

• Crypto gains already realised earlier in the current year

• Self employment income

• Salary and wages subject to PAYE

This is highly fact specific. The commercial intention, transaction history, holding pattern and overall tax profile all matter. It is not something to do blindly or purely for optics. However, for some investors, crystallising losses before 31 March can materially improve their overall tax outcome and assist with cash flow management.

Timing is critical. Once the financial year has ended, you cannot go back and create a loss in the prior year. Planning must occur before balance date.

If you are carrying a prior year tax obligation, that amount still needs to be paid. However, thoughtful planning now may reduce your current year liability and prevent the problem compounding into the next year.

If you are unsure whether this applies to you, it is worth reviewing your position sooner rather than later. A short review now can often prevent a much larger issue down the track.