Bitcoin holders in the UK were breathing a sigh of relief as the Chancellor resisted any change to capital gains tax in yesterday’s Budget.
The cryptocurrency has risen in value to around US$50,000 from US$5,000 at the start of the last tax year in April, generating a huge windfall for anyone who caught the upwards wave.
Gains would be generated (and liable for tax) says HMRC if these were then switched back into fiat currency – such as sterling or the dollar, another cryptocurrency or even used to buy things.
Speculation ahead of the Budget was that the rate of CGT was set to rise to capture some of these gains, with a 2020 report from the Office of Tax Simplification that CGT needs to be more closely aligned with income tax adding to the chatter.
In the event, Sunak froze the current CGT thresholds at 10% for basic-rate taxpayers and 20% for higher-rate taxpayers. The CGT tax-free allowance of £12,300 was also frozen until 2026.
Income tax rates are currently 20% at the basic rate and 40% for higher rate taxpayers.
Tax experts, warned though that raising CGT in line with income tax might raise £14bn annually for the government and with the direction of travel seemingly towards higher taxes eventually to help pay for Covid-19 support schemes, this might be a case of postponement rather than cancellation for CGT.
Chris Sanger, the head of Tax policy at accountant EY, said: “Some of the measures [in the Budget] seem to show that the Chancellor is more focused on support than on simplification, perhaps one reason why he chose not to act today in response to some of the measures suggested by the Office of Tax Simplification on areas such as Capital Gains Tax.
“As for the future, there is still more to come, with the new “Consultation Day” coming in under three weeks in the snappily titled Command Paper, ‘Tax policies and consultations (Spring 2021)’.
“We may yet see more tax rises signalled in this document as today’s £30bn per annum by 2025 falls short of the figure that the Chancellor was thought to be targeting.“
Rebecca Williams, Head of Wealth Planning at Brown Shipley, added: “The CGT exemption of £12,300 will be frozen until 2026.
“However, we shouldn’t be lulled into a false sense of security. This doesn’t preclude the Chancellor raising rates of CGT and the spectre of alignment with income tax rates is still hovering in the background.”
Bitcoin was changing hands today at just over US$49,000.