As the UK tightens the screws on cryptocurrency taxation, investors and policymakers find themselves at odds over the future of digital finance.
From April, around 12 per cent of UK crypto holders could face a hefty 24 per cent capital gains tax (CGT) rate – part of a broader tax squeeze that some argue is overdue, while others critique for driving innovation and investment out of the country.
With crypto adoption surging, especially among younger investors, the UK government is ramping up its tax policies, treating cryptocurrencies more than traditional investments.
But a proposed 0.5 per cent transaction tax on crypto, similar to stamp duty on equities, has sparked debate over whether it’s a necessary step to level the playing field.
A tougher tax regime
The UK’s crypto tax framework has long been a point of contention. HMRC considers digital assets as taxable property, meaning profits from trading, staking or selling crypto are subject to CGT or income tax, depending on the nature of the transaction.
The latest changes are particularly harsh regime, as the CGT allowance has already been slashed from £12,300 in 2022 to just 3,000.
Now, with a 24 per cent CGT rate looming, more investors will be forced to declare and pay tax on crypto gains, placing them in the same tax bracket as traditional equity investors.
“Unlike the US, where the President Trump has embraced crypto-friendly policies, the UK remains deeply sceptical”, said David Morrison, senior market analyst at Trade Nation.
“Rather than fostering innovation, the government is taking a paternalistic approach, treating investors as if they can’t manage their own risks. This could drive crypto firms and developers to more favourable jurisdictions.”
A crypto taxation backlash
Beyond capital gains, another controversial proposal has emerged: A 0.5 per cent transaction tax on crypto trades, not unlike the UK’s stamp duty on shares.
Investment bank Cavendish’s chair, Lisa Gordon, argues that such tax could boost traditional stock market investment, steering young investors away from crypto and into equities.
Gordon is alarmed that over half of Brits under 45 own crypto, but don’t invest in stocks – a trend she argues threatens the economy.
She told City AM: “Investment in public equities should not have a higher barrier to entry – investment wise – than a non-regulated asset class like crypto”, which she argued are, by their nature “should be easier.”
“Cryptocurrencies don’t contribute to economic growth in the same way as equities”.
The UK already levies a 0.5 per cent stamp duty on London Stock Exchange- listed shares, generating around £3bn annually.
Gordon’s proposal would shift some of this burden onto crypto transactions while reducing stamp duty on equities to make them more attractive.
“Investment in public equities is extremely important as they provide growth capital to companies that employ people, innovate and pay corporation tax.”
But, this move could do more harm than good.
“Adding extra costs to crypto trading will only drive UK investors toward offshore platforms”, Morrisons warned. “We should be making the UK a hub for financial innovation, not pushing talent and investment elsewhere.”
London’s market struggles
Gordon’s concerns come as the LSE faces one of its weakest periods in years.
Just 18 firms listed in 2023, which is down from 23 in 2022, as companies delist or snub London, opting for US markets instead.
She dubbed the UK as “underweight” in terms of domestic equity investment, from both an insurance capital and pension perspective.
With liquidity drying up and valuations lagging behind international peers, the government is under pressure to reinvigorate UK equities.
Some think taxing crypto would push funds into more ‘stable’ investments. Yet, others warn it risks alienating the type of investors the UK should be attracting.
The UK’s crackdown
The UK’s increasingly rigid stance wholly opposes digital asset developments across the pond.
Since returning to office, President Trump has loudly embraced crypto, appointing more lenient regulators while even seeing the rise of a Trump-branded $TRUMP coin, which briefly surged in value.
This shift in the US is seen as a sign of a government willing to work with digital asset investors.