Capital Gains Tax in UK Budget 2024: The Impact on Cryptocurrency Investors
The UK government has announced upcoming changes in its 2024 budget that will raise Capital Gains Tax (CGT) rates starting April 2025. For crypto investors, this change means paying higher taxes when selling digital assets.
Let’s discuss what Capital Gains Tax on cryptocurrency in the UK is, how it applies to crypto assets, and what these new changes mean for you.
What Is Capital Gains Tax?
Capital Gains Tax, or CGT, is a tax on the profit when you sell or "dispose of" an asset that has increased in value. It’s important to note that you’re only taxed on the gain made from the sale, not the entire amount.
For example, if you bought a painting for £1,000 and later sold it for £1,500, you’d only pay CGT on the £500 gain.
The types of assets subject to CGT include:
Property
Stocks and shares
Cryptocurrencies
Personal possessions (such as jewellery, artwork, or antiques) worth over £6,000
When it comes to cryptocurrency, the rules are clear: if you buy crypto and later sell it for a profit, the gain is taxable under CGT.
Current CGT Rates and Upcoming Changes
Currently, CGT is charged at two levels in the UK:
Lower Rate: 10% for individuals who are basic-rate taxpayers
Higher Rate: 20% for higher-rate taxpayers
For assets like residential property, the rate is 18% for basic-rate taxpayers and 28% for higher-rate taxpayers. However, crypto gains fall under the standard CGT rates (10% and 20%) and don’t benefit from any property-related exemptions.
Capital Gains Tax Changes in 2025
The 2024 UK budget has introduced new CGT rates starting from April 2025:
Lower Rate: Increasing from 10% to 18%
Higher Rate: Rising from 20% to 24%
Note: Residential property will remain at 18% and 28%, but for crypto, these new rates will apply. It will probably reduce the gains you take home.
How These New Rates Will Impact Crypto Investors?
So, what does this mean for crypto enthusiasts and investors? Here’s a breakdown of how the new rates could affect you:
1. Higher Taxes on Crypto Profits
Let’s say you purchased Bitcoin when it was priced at £15,000 and sold it in 2025 for £25,000, making a gain of £10,000. With the new rates in place, you would pay:
Basic-Rate Taxpayer: 18% on the gain, totaling £1,800 (up from £1,000 previously).
Higher-Rate Taxpayer: 24% on the gain, amounting to £2,400 (up from £2,000 previously).
This increase means a huge drop in your profit margin, with more money going toward taxes.
2. No Property-Type Exemptions for Crypto
Unlike residential property, where sellers sometimes benefit from certain tax reliefs, crypto assets don’t get this luxury.
Every pound of profit you make from selling your cryptocurrency will be subject to the full CGT rate, without exemptions or tax breaks.
3. The Importance of Record-Keeping
With these higher rates on the horizon, keeping detailed records of every crypto transaction will be crucial. Here’s why:
Accurate Reporting: Ensures you only pay what you owe, avoiding overpayment or underpayment.
Easier Tax Filing: Organised records simplify the reporting process, which can get complicated if you have frequent transactions.
Avoiding Penalties: Inaccurate reporting can lead to crypto tax penalties or even investigations by HMRC.
How to Stay Prepared for the New CGT Rates?
If you are a crypto investor, these changes may feel like a challenge, but with proactive planning, you can manage your tax obligations effectively. Follow these tips:
1. Consider Timing Your Sales Wisely
Selling crypto right before April 2025 could save you money on taxes, as you will still be subject to the lower rates. However, consider market conditions before making any decisions.
2. Set Aside a Portion of Your Gains for Taxes
One way to prepare for the increased tax burden is to set aside a portion of your profits whenever you sell crypto.
For example, if you know you will be in the higher tax bracket, keep around 24% of your gains as a “tax reserve” so you are ready when tax season arrives.
Why Do Crypto Investors Need to Be Proactive?
With the tax hike on the horizon, crypto investors are wise to stay one step ahead. Taking action early not only helps you sidestep stress but also ensures you are maximising your gains.
Let us share why being proactive is your new best friend:
1- Know the New Rates
Understanding the new Capital Gains Tax (CGT) rates set for 2025 is crucial. The tax bite on your crypto gains will be different, so it’s important to know just how much you will owe when you sell.
2- Organise Your Records (Yes, Every Transaction!)
Keep a tidy record of every crypto trade. Sounds tedious? Maybe, but it’s worth it. Tracking dates, amounts, and the profit or loss on each trade can save you loads of hassle when it’s tax time.
Plus, organised records can help you identify patterns and spot any potential deductions you might otherwise miss!
3- Plan Your Taxes with a Pro
Having a tax strategy can make a big difference. A crypto accountant can help you build a game plan that takes into account your trading style, gains, and the upcoming CGT rates.
Final Thoughts: Don’t Let Taxes Eat Into Your Profits
The upcoming CGT changes mean crypto investors will need to think carefully about their trading decisions and tax planning. The rising rates may seem daunting. All you need is a solid understanding of your tax obligations and a proactive approach to managing your assets.
Enter Crypto Accountants!
Looking for expert guidance on crypto taxes? Crypto Accountants UK is here to help you with the cryptocurrency tax in UK. Book an appointment today and ensure you are prepared for the April 2025 changes. Don’t let tax season take you by surprise!