British cryptocurrency and blockchain stakeholders are calling for a reassessment of how the sector is taxed, stating that current conditions are a hindrance to growth.
Recap, a crypto management and tax calculation company, penned a letter to HM Treasury this week which has been supported by some of the UK’s biggest crypto organisations including CryptoUK, the UK Cryptoasset Business Council, and Bitcoin Policy UK.
Dan Howitt, Recap CEO, wrote the letter on behalf of the firm and with the support of the wider UK crypto industry. The letter calls for ‘immediate legislative updates’ to no longer classify cryptoasset transactions as trigger taxable events.
This would remove what the stakeholders label ‘dry and unfair tax charges’ on crypto inventors, which Howitt stated impact around 1.2 million people across the UK. Given that the Financial Conduct Authority (FCA) estimates that around 12% of UK adults own some form of crypto, it covers a growing population engaging with digital assets. .
Current tax rates on crypto stipulate that holders will pay between 10% and 20% tax on any crypto gains depending on the relevant tax band. Crypto asset holders who make less than £50,270 from a transaction will pay 10% on any gains, while those who make above this threshold will pay 20%.
Howitt and others believe, however, that there is a disparity between how traditional financial assets i.e. stocks and shares, and cryptocurrency, are taxed. The UK tax law ‘has not kept pace’ with changes in the crypto industry, the stakeholders assert.
The main area of contention for the industry is the ‘no gain, no loss’ tax relief treatment traditional securities benefit from. In the case of stock and share repurchases or lending agreements, the transaction is not subject to taxation.
This is not the same with crypto transactions, something which the industry wants to see changed based on the argument that no ‘disposal’ takes place in either circumstance.
“This disparity hinders the UK’s potential to become a global hub for cryptoasset financial services because it imposes additional administrative and tax burdens on an industry that relies on innovative financial products,” Howitt’s letter reads.
Finding crypto’s place in UK growth plans
An obstacle the industry lobbying may face is in the change of government in the UK, with the previous government, particularly under PM Rishi Sunak, sharing its ambitions for the UK to become a ‘crypto hub’.
Various Conservative MPs were big advocates of digital assets and of the idea it could lead a new digital British economy. In contrast, the Labour government, which came into power in an election landslide last year, has a less clear agenda around crypto.
In fairness to PM Keir Starmer and Chancellor of the Exchequer, Rachel Reeves, the government has introduced some legislation around digital assets which if passed, will recognise these assets as personal property.
In an ideal scenario for the crypto industry, stakeholders would like to see HMRC’s review of DeFi, which began three years ago. The industry is calling for this review to come to a conclusion to provide clarity for the sector.
Reviews take time though. Take the review of the 2005 Gambling Act, for example, which began in December 2020 and led to a White Paper being published in April 2023, with recommendations from this paper still in the process of being implemented.
Crypto stakeholders will still take encouragement from the above-mentioned legislation around digital finance, and the fact that the Labour government seems keen to legislate in other areas at the convergence of technology and finance – smart data, digital ID, AI and Open Banking being the most notable ones.
Howitt has also cited the government’s growth ambitions for the UK economy, which are the centrepiece of its political agenda. The government’s various bills and policies around financial services are in turn a centrepiece of this agenda, while Starmer and Reeves also want to attract more investors and businesses to the UK.
With the value of crypto rising to new heights at the end of 2024, interest in the sector among both business and consumers is at an all-time high – as shown by the FCA’s figures around crypto ownership in the UK, though these are not quite as high as countries like Slovenia and Croatia.
“With cryptoassets taking on a bigger role in global finance, the UK risks missing a vast growth opportunity by maintaining an outdated tax stance,” the letter continues.
“The collective stresses that if the UK wants to attract innovators and top talent, a supportive—and fair—tax environment is essential.”
Crypto lobbyists will still have their work cut out when convincing the government, however. Authorities maintain concerns around money laundering, fraud, criminal financing and criminal transactions, which will not go away anytime soon.
Crypto’s volatility is another factor. The global market has felt a burn lately, partly due to hopes that Donald Trump would introduce some concrete policies around crypto did not come to fruition, with Bitcoin falling below $100,000 as a result. The volatility of crypto may also give the government pause for thought.
