The recent sharp appreciation in cryptocurrency prices, particularly Bitcoin, has encouraged many investors to consider selling their holdings. However, if you’re thinking about cashing in on your profits, it’s important to understand how the recent changes to Capital Gains Tax announced in the Autumn Budget will impact what you owe. These changes, which were introduced on 30th October 2024 mean higher taxes on crypto profits, so it’s crucial to know the new rules and how they apply to cryptocurrency investors.
What has changed?
Before the Autumn Budget, CGT rates on profits from selling assets like cryptocurrency were 10% for basic-rate taxpayers (those with lower income) and 20% for higher-rate taxpayers (those with higher income). Now, the rates have increased to 18% for basic-rate taxpayers and 24% for higher-rate taxpayers. This change applies to all assets subject to CGT, including cryptocurrency, and it means that everyone selling Bitcoin or other digital assets will face higher taxes on their profits.
Let’s say you bought 1 BTC on 1st November 2018 for £4,500 (the price at the time) and you’re selling it now, on 24th November 2024, for £76,400 (the current price). Your profit would be:
• £76,400 (selling price) – £4,500 (buying price) = £71,900.
Here’s how much tax you would owe under the old and new CGT rates:
• Under the Old Rates:
o Basic-rate taxpayer: £65,900 x 10% = £6,590.
o Higher-rate taxpayer: £65,900 x 20% = £13,180.
• Under the New Rates:
o Basic-rate taxpayer: £65,900 x 18% = £11,862.
o Higher-rate taxpayer: £65,900 x 24% = £15,816.
As you can see, under the new rules, a basic-rate taxpayer would pay £5,272 more, while a higher-rate taxpayer would pay £2,636 more in tax for the same sale.
Cryptocurrency switching will not help
Some investors might think switching Bitcoin (BTC) to another cryptocurrency like Tether (USDT) instead of cash could help reduce their tax bill. Unfortunately, this isn’t the case. HMRC treats the exchange of one cryptocurrency for another as a taxable disposal, just like selling for fiat currency (e.g., GBP). This means if you trade BTC for USDT, it triggers a capital gains event, and you’ll need to calculate and report any profit made at the time of the trade. The same CGT rules and rates apply, whether you’re trading for cash or another cryptocurrency. In other words, switching BTC to USDT or any other cryptocurrency won’t help you avoid CGT on your profits
.
Is there any way to escape the tax?
In one word – no. At least legally. Some might think about evading tax by not declaring the sale of crypto assets. However, failing to declare the sale of cryptocurrency assets can lead to serious penalties and consequences under UK tax law.
Penalties for deliberate evasion may reach 100% of the tax due. Plus, interest. In severe cases, particularly for deliberate tax evasion or fraud, HMRC can pursue criminal charges. This could lead to criminal fines (substantial amounts, depending on the scale of evasion) and imprisonment. For the most serious cases, sentences can reach up to 7 years.
