- The UK wants to plug a $22 billion hole in its finances.
- One way to do this is to increase the capital gains tax.
- But the crypto industry warns this could lead to a brain drain.
A version of this story appeared in our The advice newsletter of October 21. Register here.
Rachel Reeves is in trouble.
Britain’s finance minister has a £22 billion ‘black hole’ in the country’s finances, but using a capital gains tax to help fill it would put British businesses at risk, warns the technology industry.
Crypto industry insiders warn that a rise risks triggering a mass exodus of innovative companies.
“This could have far-reaching consequences, not only for the crypto and fintech sectors, but also for the UK economy as a whole,” said Nick Cowan, CEO of VLRM Capital.
The threat is the latest setback for the UK crypto industry.
The UK’s financial markets watchdog has been tough on the sector, new crypto laws have been delayed and the country is struggling with a high cost of living.
Companies will take this climate into account when deciding where to set up shop, crypto insiders say.
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If you take all that uncertainty, “and then you say, ‘OK, guys, if you do really, really well and you hit the dreamland IPO goal in five years, we’re going to take 50%.’ of all your winnings” – well, that’s not much of an incentive,” Joey Garcia, head of regulation at Xapo Bank, told me.
The tax dilemma
Reeves will announce his first budget on October 30.
It would like to raise £40 billion, more than any other budget in history.
The government says it will not increase income tax, national insurance or VAT.
But he appears poised to bring the capital gains tax – currently at 20% on most assets – closer to the income tax, whose top rate is 45%.
This amounts to a mixed signal from Westminster.
On the one hand, Labor has pledged to put technology at the forefront of its policies – but has said little about digital assets and nothing about its stance on crypto.
On the other hand, by raising taxes, it means that the government will take a significant share of the innovation revenue.
Alarmed tech lobbyists have warned that increasing capital gains tax from 20% to 39% will drive startups out of the UK.
And this hike will hit crypto investors and businesses particularly hard, as it’s the main way the UK taxes crypto assets, Suzanne Morsfield, CryptoUK’s policy advisor, told me.
It’s not just about taxing gains from cryptocurrency trading, she said. Many companies in the UK are focused on creating blockchain products to help investment banks accelerate traditional asset trading.
Reeves must walk a difficult line between raising revenue and encouraging business, Morsfield said.
Contact the author at joanna@dlnews.com
