The United Kingdom will provide tax relief to foreign cryptocurrency investors who purchase digital currencies through regulated brokers and investment managers starting January 1, 2023. This comes as the region is taking concrete steps to create a favorable environment for cryptocurrency investors.
More foreign investors entering the country
Foreign investors can now buy cryptocurrencies tax-free through local brokers and investment managers. The UK government’s tax agency, HM Revenue and Customs (HMRC), sees the exemption as a key factor in attracting overseas investors because it will prevent them from being charged UK tax simply by hiring an investment manager based in the country.
The body went on to say that the tax relief had been extended to cover crypto assets to support the UK’s position as a hub for investment management and ensure that funds incorporating these assets are not deterred from choosing UK managers.
The move comes against the backdrop of a backlash against cryptocurrencies in the UK, with institutions considering crypto assets to be unregulated financial instruments. As such, HMRC taxes both traditional investments such as stocks and shares and cryptocurrencies such as Bitcoin.
The country already offers tax advice to resident cryptocurrency traders. In July, the tax agency sought opinions from investors and industry experts on taxing decentralized finance (DeFi).
How the UK taxes cryptocurrencies
If you buy cryptocurrencies and sell them in the UK at a higher price, your profits will be subject to capital gains tax. Unless your capital gains income exceeds £12,300, you will not have to pay tax to HMRC for the 2022-2023 financial year.
Crypto taxes may also be a factor if you make a profit from digital currencies. For example, if you earn interest in a cryptocurrency savings account, your withdrawals may be subject to income tax. This may apply to liquidity farming and cryptocurrency staking, among other sources of passive income.
It is vital to consider any potential tax obligations associated with crypto debit cards in the UK, as transactions will result in the sale of your crypto for GBP at the time of the transaction, realising a capital gain that may be taxable.
The Financial Services and Markets Bill, currently being debated in Parliament, will give local financial regulators more powers over the industry.
UK - That's not all
The Treasury has announced plans to launch a consultation in the coming weeks to determine the best way to regulate the crypto space. With these initiatives underway, it’s clear that the UK is determined to play a leading role in shaping the future of cryptocurrencies.