U.K. tax authorities eye crypto assets in up-and-coming budget
According to chartered accountants HillierHopkins, Her Majesty’s Revenue and Customs (HMRC) will target crypto investors in the up-and-coming budget on March 3. Principal at the firm Thomas Gibbs predicts this will take the form of a hike in Capital Gains Tax (CGT) from 20% to 40%.
“HMRC sees cryptocurrencies not as a currency but as investment assets and as such are subject to capital gain tax. The huge increases in Bitcoin in recent weeks will see HMRC take a keen interest where investors choose to cash-in on that growth.”
Could Sunak target crypto investors?
The UK’s Chancellor of the Exchequer Rishi Sunak is due to deliver his budget statement next week. Considering the past year’s events, the BBC has called this budget the most closely watched in a generation.
In a bid to plug overspending due to the panic situation, some analysts predict a raft of tax increases. But more relevantly for crypto investors, this could mean a rise in their tax liability.
Individuals are liable to pay Income Tax and National Insurance on crypto received from an employer, mining activity, and airdrops. As well as that, a CGT liability arises on the gain made upon disposal of crypto assets.
HMRC acknowledges that crypto assets are digital and therefore intangible. But they categorize crypto assets as chargeable assets, which they define as most personal possessions greater than £6,000 ($8.5k).
In a potential double whammy, the current CGT allowance is set at £12,300 ($17.3k), meaning no CGT tax liability arises until that threshold is exceeded. But wealth managers Investec warn that HMRC may reduce the CGT allowance to between £2,000 ($2.8k) and £4,000 ($5.6k).
Clampdown on tax evaders
Bitcoin, as the leading cryptocurrency, recently hit an all-time high of $58k. With the growing prevalence of crypto, authorities are increasingly looking towards it as a revenue spinner.
While that may mean a hike in rates and/or a cut in allowance, HMRC is also targeting crypto tax evaders. Last month, they posted a £100k ($141k) IT contract for the express purpose of developing a blockchain analysis tool.
This was accompanied by a description that sets out their intent for the project, which is to gather intelligence on transactions and identity matching services.
“Provision of a tool that will support intelligence gathering methods to identify and cluster Cryptoasset transactions into linked transactions and identify those linked to Cryptoasset service providers.”
Gibbs mentioned that given the soaring prices of late, HMRC is now taking a keen interest in crypto.