Proposed Capital Gain Tax In U.K. Could Affect Crypto Holders
Last updated on November 1st, 2022 at 12:58 am
Cryptocurrency holders and the crypto community in the UK are seriously monitoring the developments regarding a possible increase on capital gains. The proposed tax hike is expected to be deliberated by Rishi Sunak, the U.K.’s Chancellor of the Exchequer.
Although Sunak is not particularly interested in crypto holders, the decision could also apply to them as well.
According to a white-collar crime later at Gherson Solicitors, Thomas Cattee, a hike in CGT rates will also impact on cryptocurrency enthusiasts who have invested in Bitcoin and other digital asset classes.
The Office of the Tax Simplification recommended in a 2020 report that capital gains tax should be grouped with income tax, which could raise about £14 billion in tax. That also means that the tax rates on capital gains will be effectively doubled.
Impact on Crypto Holders
As it stands at the moment, higher rate taxpayers pay 20% for capital gains tax while basic-rate taxpayers pay 10% of their gains.
However, income tax is levied at 40% for higher-rate taxpayers and 20% for basic rate taxpayers.
The report also presented an option of reducing the Annual Exempt Amount for CGT from £12,300 to either £2,500 or £6,000.
Upon the implementation of the new rule, majority of crypto holders will now pay capital gains tax whenever they sell their crypto assets. Whether they exchange it for another crypto asset or sell it for fiat money, the action will attract a CGT. The same thing is also applicable when they give it out or use it to pay for goods and services.
Smaller Crypto Holders Face Similar Fate
If the Chancellor decides to adopt a very strict measure to gain more tax, it will mean a tax of £7,500 to £19,000 will be imposed on a £50,000 profit from crypto investments.
However, higher-rate taxpayers are not only liable to face such a high tax rate. When the Chancellor reduces the Annual Exempt Amount, it means a greater number of crypto holders could be facing higher tax rates as well.
At the moment, taxpayers are liable to pay tax on CGT when the capital gains exceed £12,300. However, the Office of Tax Simplification has proposed to cut down the threshold to £2,500. As a result, thousands more will be included if the new policy goes into effect.
Stakeholders Say Raising Taxes Now Not an Option
But many believe the Chancellor wouldn’t want to increase the tax rate too high in the budget. Nimesh Shah, chief executive of Blick Rothenberg, a tax advisory firm, thinks the Chancellors consideration is coming too soon. Shah stated that the proposal to increase capital gain tax will not align with the budget, which is mainly about the extension of support.
Others have also weighed in on the proposal, especially Senior Conservative MPs. In their opinion, the Chancellor shouldn’t consider raising tax, as raising the tax burden isn’t a palatable policy at this economically dull period.
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