The UK government unveiled its most recent budget earlier today, outlining further assistance for energy costs, increases to pensions, benefits, and the minimum wage, adjustments to tax bands, and more. The projected reduction in the Capital Gains Tax tax-free allowance is one major move that would impact owners of cryptocurrencies like Bitcoin.
You currently have a tax-free allowance of £12,300, and you have for a number of years. For instance, if you purchased Bitcoin for £2,000 and sold it for £20,000, your gains would be £18,000, but you would also have to deduct the tax-free allowance from that amount. This means that even if you made a gain of £18,000, you would end up paying tax on just £5,700.
The government has announced that, starting in 2023, the tax-free allowance would drop to £6,000 and that any gains exceeding that amount will be subject to tax. But things get worse because in 2024 the allowance is expected to drop once more to a pretty meagre £3,000 per year. That is a decrease of over 75% from the current tax-free amount.
Your income and the size of the gain you made on the asset will determine how much capital gains tax you must pay on cryptocurrency. Up until the £50,270 upper limit of the Basic rate of income tax, you pay 10% on anything above the tax-free allowance; anything after that is assessed at a 20% rate. Since the sums can be a little challenging to calculate, using an internet calculator can be useful.
