- The UK wants to plug a $22 billion hole in its finances.
- One way to do that is to raise capital gains tax.
- But the crypto industry warns it could lead to a brain drain
A version of this story appeared in our The Guidance newsletter on October 21. Sign up here.
Rachel Reeves is in a pickle.
The UK finance minister has a £22 billion “black hole” in the nation’s finances but using a capital gains tax to help plug it will jeopardise British business, the tech industry warns.
Crypto industry insiders warn that a hike risks triggering a mass exodus of innovative companies.
“This could have far-reaching consequences, not just for the crypto and fintech sectors but for the broader UK economy,” Nick Cowan, Group CEO of VLRM Plc , said.
The threat is the latest setback for the British crypto industry.
The UK’s financial markets watchdog has been tough on the industry, new crypto laws were delayed, and the country is struggling with a high cost of living.
Businesses will take this climate into consideration when deciding where to set up shop, crypto insiders say.
If you take all that uncertainty, “and then you say, ‘OK, guys, if you do really, really well and you hit the dreamland IPO target in five years, we’re going to take 50% of all your gains’ — well, that’s not very incentivising,” Joey Garcia, director and head of public affairs, policy and regulation at Xapo Bank, told me.
The tax dilemma
Reeves will announce her first budget on October 30.
She reportedly wants to raise £40 billion — more than any other budget in history.
The government says it won’t raise income tax, national insurance or VAT.
But it seems poised to bring capital gains tax — currently at 20% on most assets — more in line with income tax, where the highest rate is 45%.
It amounts to a mixed signal from Westminster.
On the one hand, Labour has vowed to put tech 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 hiking taxes it’s saying the government will take a big bite out of the proceeds of innovation.
Alarmed tech lobbyists have warned that raising the capital gains tax from 20% to as high as 39% will drive startups from the UK.
And that hike will hit crypto investors and businesses especially hard, because it’s the main way the UK taxes crypto assets, CryptoUK policy adviser Suzanne Morsfield told me.
It’s not just about taxing the gains of cryptocurrency trading, she said. Many businesses in the UK are focused on creating blockchain products to help investment banks speed up trading in traditional assets.
Reeves must walk a tough line between raising revenue and encouraging business, Morsfield said.
Reach out to the author at joanna@dlnews.com
Correction, October 23: A previous version of this article misstated that Nick Cowan was the CEO of VLRM Capital. He is the Group CEO of VLRM Plc, of which VLRM Capital is one pillar.