Effective Jan.1, 2023, the U.K. will offer tax relief for crypto foreign investors who purchase digital currencies via regulated brokers and investment managers. This is as the region takes concrete steps to become a favorable environment for crypto investors.
More foreign investors in the country
Today, foreign investors can purchase crypto through local brokers and investment managers with a tax exemption. The U.K. government’s tax agency, HM Revenue and Customs (HMRC), argued that the waiver was a crucial element in luring overseas investors, as it would prevent them from being subjected to U.K. taxation simply by hiring investment managers headquartered in the country.
The agency went on to state that this tax break has been expanded to cover crypto assets to support the U.K.’s status as a center for investment management and ensure that funds that incorporate them aren’t discouraged from choosing U.K. managers.
The move is against the backdrop of the U.K.’s stance against cryptocurrencies. Agencies consider crypto assets to be unregulated financial instruments. Accordingly, HMRC taxes traditional investments like stocks and shares and cryptocurrencies like Bitcoin similarly.
The nation already provides resident cryptocurrency dealers with tax advice. In July, the tax agency sought opinions from investors and industry experts on taxing Decentralized finance (DeFi).
How the U.K. taxes cryptocurrencies
If you purchase cryptocurrencies and sell them for a higher price in the U.K., your profit will be subject to capital gains tax. No tax will be owed to HMRC for the fiscal year 2022–2023 unless you earn more than £12,300 in capital gains.
If you profit from your digital currencies, crypto tax can also be a factor. For example, if you use a cryptocurrency savings account to earn interest, your withdrawals may be subject to income tax. This may apply to yield farming and crypto staking, among other passive revenue sources.
It’s crucial to consider any potential tax obligations connected to crypto debit cards in the U.K. It is because transactions result in the sale of your cryptocurrency for GBP at the moment of the transaction, realizing capital gains that may be subject to tax.
The Financial Services and Markets Bill, currently debated in parliament, would give local financial regulators more authority over the sector. And that’s not all – the U.K.
Treasury has announced plans to kick off a consultation in the coming weeks to determine the best way to regulate the crypto space. With these initiatives in motion, it’s clear that the U.K. is determined to take a leading role in shaping the future of cryptocurrency.