Crypto investors across the UK are keeping a close eye on Wednesday’s budget announcement from Finance Minister Rachel Reeves, as Labour prepares to unveil its first UK budget in 15 years.
Suzanne Morsfield, policy advisor at CryptoUK, warned that a capital gains tax increase, possibly above the current 28%, would have significant implications for Britain’s estimated five million crypto holders.
Morsfield pointed out that capital gains tax is often seen as a way of targeting the wealthiest citizens, making them contribute more to the public purse. However, she noted, “that perception is not entirely accurate when it comes to crypto.”
In reality, a tax increase would hit many smaller investors hard, with nearly two-thirds of UK crypto owners holding £500 or less, according to the Financial Conduct Authority.
“It’s everyday people with relatively small holdings who will get hit disproportionately,” Morsfield explained.
The potential tax hike arrives amid broader concerns from the UK tech sector, which has warned that higher taxes could drive innovation away from Britain.
The historic budget is anticipated to send ripples through the markets in real-time and comes shortly after Labour’s recent election triumph, which ended years of Conservative leadership. This budget announcement will also mark a milestone, as Reeves becomes the first female chancellor to deliver a full UK budget.
With the Treasury reportedly facing a £22 billion funding shortfall attributed to prior Conservative policies, Reeves is under pressure to find solutions.
While Labour leader Sir Keir Starmer has pledged not to raise VAT, income tax, or national insurance—taxes that impact working-class citizens directly—he has signalled plans to raise taxes on capital gains and inheritance.
Press reports indicate Reeves has modelled a capital gains tax increase as high as 39%, although Starmer has denied any plans for such a steep rise.
This speculation follows the government’s unpopular decision to end winter fuel payments, a cut that could leave some pensioners, particularly the less well-off, struggling to afford basic energy costs.
Capital gains tax is levied on profits from investments in assets like property or shares, impacting relatively few people. This year, for example, it is expected to generate £15.2 billion—about half of the revenue gathered from income tax.
However, for crypto holders, the tax implications are significant since the primary tax treatment for digital assets falls under capital gains, a fact Morsfield calls “unfair” for the many small-scale investors affected.
As Dary McGovern, COO of Xapo Bank, noted, Reeves faces the difficult task of bridging a vast financial gap while Labour aims to avoid measures that could harm everyday citizens.
With many crypto investors falling into this category, any tax increase could prove especially impactful.
