Earlier today, the UK government set out its latest budget where it announced more help with energy bills, rises to pensions, benefits, and the minimum wage, alterations to tax brackets, and more. One notable change that will affect holders of cryptocurrencies like Bitcoin is the planned reduction in the Capital Gains Tax tax-free allowance.
As things stand today, and have done so for a number of years, you have a tax-free allowance of £12,300. As an example, if you bought Bitcoin for £2,000 and sold it at £20,000, your gains are £18,000, but then you got to knock off the tax-free allowance too. This means you’d end up paying a certain percentage of tax on just £5,700 despite making a gain of £18,000.
In a bid to extract more money from the public, the government has said that from 2023, the tax-free allowance will fall to £6,000 and any gains above that will be taxed. It gets worse, however, as in 2024 the allowance is set to fall again to a rather stingy £3,000. That’s more than a 75% drop compared to today’s tax-free allowance.
The amount of tax you pay on crypto as part of capital gains tax depends on your income and how much of a gain you’ve made on the asset. You pay 10% on anything above the tax-free allowance until you hit the £50,270 upper threshold of the Basic rate of income tax, and then anything above that is charged at 20%. Using an online calculator can be helpful for working out the sums, as they can be a bit complicated.