The Spring Budget 2023

The Spring Budget package sets out a number of tax measures to drive enterprise through boosting investment, support employment by incentivising work and spread the benefits of economic growth everywhere. Let look at some of the key measures that may impact Cryptocurrency investors.

We recommend that you review your financial plans regularly as some aspects of the Budget will not be implemented until later dates. We hope you find this useful and our cryptocurrency tax specialists will, of course, be happy to discuss with you any of the points covered in this report and help you adapt and reassess your plans in the light of any legislative changes.

The announcement of significant tax changes several times a year, to apply from different dates, makes it hard to keep track of what is changing, when the changes will apply, and how they affect your finances. In this document we have set out some of the latest proposals that impact cryptocurrency investors, but also included some significant measures from other earlier announcements as a reminder of their importance. If you would like to discuss what it all means for you, we will be happy to help.

Personal Income Tax

Separate schedule to report Cryptocurrency Activities.

The government is introducing changes to the Self-Assessment tax return forms requiring amounts in respect of cryptocurrency to be identified separately. The changes will be introduced on the forms for tax year 2024-25.

Cryptocurrency related information will no longer be hidden in the CGT other or as miscellaneous income. These changes should help HMRC identify cases for further investigation in relation to cryptocurrency holdings, particularly given the OECD is developing a CRS-type framework to facilitate global data sharing via a Crypto-asset reporting framework.

Capital Gains Tax

The Autumn Statement included the announcement that the annual exempt amount would be cut from £12,300 to £6,000 for 2023/24 and to £3,000 for 2024/25. The rates of CGT are unchanged at 10% for basic rate taxpayers and 20% for higher rate taxpayers on general assets, and 18%/28% on residential property and carried interest.

The reduction in the exempt amount will increase the tax payable, and it is also likely to require more people to complete self-assessment returns in order to report chargeable gains. Anyone with gains of more than the exempt amount has to report them. If gains are lower than the exempt amount, up to 2022/23 it has only been necessary to file CGT pages of the self-assessment return if the proceeds of sale are four times the annual exempt amount (£49,200); from 2023/24, the reporting limit is set at £50,000.

Tax rates and allowances – 2023/24

The Autumn Statement included the announcement that the main personal allowance and the 40% threshold will remain at their 2022/23 levels until the end of 2027/28.

This represents a tax increase where income rises from year to year. The income level above which the personal allowance is tapered away remains £100,000; it will be reduced to zero when income is £125,140. For 2023/24, this is also the threshold for paying 45% tax (reduced from £150,000).

Dividend income

The dividend allowance exempts some dividend income from tax, although it still counts towards the higher rate thresholds. For 2023/24, the allowance is reduced from £2,000 to £1,000, and it is to be reduced again to £500 for 2024/25. This increases the tax liabilities of those with dividend income above those levels, and will also require more people to file tax returns to declare those tax liabilities. The tax rates on dividend income over £1,000 remain unchanged from the tax year 2022/23. The ordinary rate, paid by basic rate taxpayers, is 8.75%; the upper rate is 33.75% and the additional rate is 39.35%. These rates apply across the UK.

The reduction in the dividend allowance and the increase in the tax rates increases the relative attractiveness of holding shares in a tax-free ISA or in a Venture Capital Trust. Dividends arising in an ISA or a qualifying VCT are not taxed and do not count towards the allowance.

Pension contributions

The generous tax reliefs given to registered pension funds are limited in amount by two main rules: the Annual Allowance (AA) and the Lifetime Allowance (LTA). The AA has capped the amount that can be put into a tax-favoured pension fund at £40,000 a year, which is reduced where the person earns over £240,000 a year down to a minimum of £4,000 (at an earnings level of £312,000 or above). Contributions made above the AA by either the individual or their employer are subject to a tax charge.

From April 2023, the AA is increased to £60,000; the taper will begin at £260,000, and the minimum AA will be £10,000.

The LTA has capped the total amount that can be saved in a tax-favoured pension scheme. It was introduced in 2006 at £1.8 million, but had been reduced several times and in 2022/23 stands at £1,073,100. The Autumn Statement provided for this to be frozen along with other allowances until the end of 2027/28. In the Spring statement , Chancellor announced that LTA charges would be abolished altogether from 6 April 2023.

Seed Enterprise Investment Scheme (SEIS)

As announced in September 2022, the generosity of the SEIS will be increased with effect from 6 April 2023. The amount that companies will be able to raise will increase from £150,000 to £250,000; the gross asset limit will be raised from £200,000 to £350,000, and the age limit on a qualifying trade will be increased from 2 to 3 years. The annual limit for investors will be doubled to £200,000.

Inheritance Tax

The Autumn Statement fixed the IHT nil rate band at £325,000 until the end of 2027/28. Holding the threshold at the same amount for 19 years (from 6 April 2009) will bring far more people into the scope of the tax. However, the £175,000 ‘residential nil rate band enhancement’ on death transfers can reduce the impact where it applies. A married couple may now be able to leave up to £1 million free of IHT to their direct descendants (£325,000 plus £175,000 from each parent), but the rules are complicated, and the prospect of the nil rate band being fixed for another 5 years increases the importance of proper IHT planning.

Corporation Tax

On 1 April 2023, the Corporation Tax rate will increase from 19% to 25% for companies with profits over £250,000. Since 1 April 2017, all corporate profits have been taxed at the same rate; the ‘small profits rate’ that was familiar before that will be reintroduced at 19% for companies with profits of up to £50,000. Between £50,000 and £250,000 there will be a tapering calculation that produces an effective marginal rate of 26.5% on profits between these limits, but an average rate on all profits of between 19% and 25%. The limits will be divided between companies that have been under common control at any time in the previous 12 months, whether UK resident or not.

Companies with an accounting period that straddles 31 March 2023 will time apportion the profits of that period to be taxed at the two different rates. For example, a company with a 30 September 2023 accounting date that makes a large profit on a transaction before 31 March 2023 will pay 25% tax on 6/12 of it. If a short accounting period is ended on 31 March 2023, that large profit will all be taxed at 19%.