The sharp rise in cryptocurrency-related insolvency cases across the UK has prompted the Insolvency Service to appoint its first crypto specialist, as it doubles down on recovering digital assets.
Former police investigator Andrew Small, an economic crime expert, will lead the Service’s work in locating unaccounted crypto, including Bitcoin, NFTs and memecoins, in bankruptcies and criminal cases. Mr Small is optimistic, saying “crypto is very much a recoverable asset.” His starting point is advising on the types of cryptocurrencies involved and the tools used to buy, trade, and store them. He hopes to hit the ground running, strengthen existing investigations and improving recovery outcomes.
The figures show very clearly that investing in digital currencies is risky. In five years, the number of insolvency cases involving digital assets has jumped 420%, while the total value of identified crypto assets has grown to more than £523,000 – from just £1,435 in 2019. These aren’t huge numbers, but the trend is concerning amid growing crypto ownership. A study by the Financial Conduct Authority found that 12% of UK adults held crypto in 2024, up from 4% in 2021, with an average holding valued at £1,842. This suggests that relatively inexperienced retail investors are dabbling in this ‘asset class’.
Recent forced closures of crypto-related companies, including an investment academy and a crypto ‘mining’ business, have accelerated regulatory changes. From 2026, operators will be required to collect and report full customer details — including names, addresses, tax IDs, and transaction data — under new tax transparency rules aligned with the OECD’s Crypto-Asset Reporting Framework.
Assuming a crypto punter hasn’t yet reached the point of bankruptcy and is sitting on theoretical losses they can afford to bear, how can they mitigate their financial position? HMRC is, unsurprisingly, up to speed with the tax treatment of crypto assets and liabilities. UK crypto investors can “bank” losses with HMRC to offset against future gains. Profitable disposals, as with other investments, attract capital gains tax at 20%. Sales at a loss, however, can offset future gains on other types of investments, such as shares or property. Losses need to be claimed within four years of the end of the tax year in which they were realised.
If the crypto position is unfortunately a wipe-out, It is also possible to bank a ‘negligible value claim’ with HMRC when a crypto asset becomes worth ‘next to nothing’. No sale is needed and the window for carrying forward is indefinite. This rule also applies to ‘lost’ crypto assets, for example if a private key or password can’t be retrieved.
Fraud is different, however. Negligible value and capital losses are allowed if proof of holding at some point can be established; but not receiving crypto asset tokens that were paid for are unlikely to be seen as a disposal since the individual still owns the stolen asset and has a right to recover it.
The Insolvency Service’s new hire is likely to be one of many as crypto is pursued in bankruptcies with the same resolve as cash, real estate and traditional securities. It’s also set to help force the pace of wider changes in financial markets, whereby better integration of crypto into the established global trading landscape ultimately supports easier tracing and lower fraud. Expect yet tougher regulation.
Written by David Buchler, Chairman at Buchler Phillips, UK based independent boutique firm with an impeccable Mayfair heritage, specialising in corporate recovery, turnaround, restructuring and insolvency.