The UK’s Autumn Budget 2024 outlines several key tax and regulatory updates that will impact cryptocurrency investors, Web3 businesses, and blockchain entrepreneurs. As the government aims to create a tax environment that supports growth while ensuring fiscal responsibility, let’s explore how changes to Capital Gains Tax (CGT), National Insurance (NI), Inheritance Tax (IHT), and compliance funding could shape the landscape for digital asset investors and blockchain-based companies.
Key Changes and Their Impacts
1. Capital Gains Tax (CGT): Increased Rates
Effective Date: 30 October 2024
The government is raising Capital Gains Tax (CGT) rates to bolster revenue while maintaining competitive levels compared to other European nations. For crypto investors and blockchain entrepreneurs, this means:
- Increased CGT Rates: The basic CGT rate will rise from 10% to 18%, and the higher rate from 20% to 24%. These rates will now align with those applied to residential property gains.
- Business Asset Disposal Relief (BADR) and Investors’ Relief (IR): These two reliefs will gradually see an increase in CGT, rising to 14% on April 6, 2025, and aligning with the new lower CGT rate of 18% on April 6, 2026.
Implication: These changes will directly impact crypto investors by raising the tax burden on gains from digital assets, potentially prompting a review of investment strategies. Blockchain entrepreneurs and Web3 startups should also consider the impact on any capital raised through asset sales or disposals. Phasing in the increases for BADR and IR reflects the government’s effort to provide predictability, although higher rates could affect long-term exit strategies.
2. Inheritance Tax (IHT): Threshold Freeze Extended
The current IHT thresholds will be frozen until April 2030, continuing a policy that initially froze them until April 2028. This freeze means that more estates may exceed the IHT threshold due to inflation, potentially impacting crypto holders who wish to pass digital assets to their heirs.
Implication: For blockchain entrepreneurs and investors, this threshold freeze means that substantial crypto holdings could become liable for higher IHT as inflation increases asset values. Estate planning for crypto assets becomes more critical, especially with the government signaling that wealthier estates should contribute more to public finances.
3. National Insurance Contributions (NIC): Increased Rate for Employers
Effective Date: 6 April 2025
Employers in Web3, blockchain, and cryptocurrency sectors who pay salaries in fiat, stablecoins, or native tokens will be affected by changes in NIC:
- Increased NIC Rate: Employers’ NIC will rise from 13.8% to 15%.
- Lowered Secondary Earnings Threshold: The threshold for secondary Class 1 NIC contributions will drop from £9,100 to £5,000, then increase with inflation starting in April 2028.
- Increased Employment Allowance: The allowance, which offsets employer NIC liabilities for eligible businesses, will increase to £10,500.
Implication: Web3 and blockchain employers may experience higher employment costs, especially as pay scales increase with new minimum wage policies. The boost in employment allowance provides some offset but could still affect startups and SMEs operating on limited budgets.
4. National Minimum Wage (NMW) and National Living Wage (NLW): Significant Increase
Effective Date: 1 April 2025
Minimum wage increases, particularly the NLW for employees aged 21 and over, will rise from £11.44 to £12.21 per hour. Rates for younger employees and apprentices will also increase.
Implication: These changes mean higher payroll expenses, a factor blockchain startups need to incorporate into budgeting. As Web3 grows, attracting talent is critical, and these mandated pay increases may further squeeze small firms’ margins.
5. Income Tax
Maintaining the freeze on income tax thresholds until 2028. This freeze means that tax bands—currently set at £12,570 for the basic rate of 20%, £50,270 for the higher rate of 40%, and £125,140 for the additional rate of 45%—will stay the same. With inflation, this freeze effectively increases the tax burden, as any salary rises will push more people into higher tax bands over time without adjustments to account for inflation. This is often seen as a form of “stealth tax” since the thresholds don’t rise in line with earnings growth, leading more taxpayers to fall into higher tax brackets each year
Implication: Many crypto investors may take profits from their assets as income, particularly those who cash out or use crypto staking rewards and yield farming gains as part of their personal income. If these earnings push them above the frozen tax thresholds, they could end up in a higher tax band, subjecting a larger portion of their total income to increased tax rates.
6. Boost in HMRC Compliance and Enforcement
With the tax gap still standing at £39.8 billion, the government has committed to strengthening HMRC’s compliance efforts, allocating £1.6 billion over five years for additional staff recruitment and enforcement.
- 5,000 New Compliance Officers: HMRC will add 5,000 compliance officers, with recruitment beginning in November 2024.
- Increased Revenue Target: This initiative aims to raise an additional £4.7 billion by 2030.
Implication: Crypto investors and Web3 entrepreneurs may face more frequent scrutiny and audits as HMRC expands its compliance workforce. This heightened enforcement aligns with the government’s broader strategy to ensure tax compliance, particularly as complex crypto transactions become more common.
Final Thoughts: Strategic Adjustments for Crypto and Web3 Stakeholders
The Autumn Budget 2024 signals the government’s intent to create a balanced fiscal environment that raises revenue while remaining entrepreneur-friendly. While tax increases and compliance initiatives may present additional challenges, understanding these changes will help crypto investors, Web3 employers, and blockchain entrepreneurs adjust their strategies accordingly. Estate planning, investment timing, employee compensation structuring, and rigorous tax compliance are key areas to focus on in light of these adjustments.
FAQ’s
Will the new National Insurance Contributions (NIC) rates affect my Web3 startup’s payroll costs?
Yes, from April 6, 2025, the employer’s NIC rate will rise from 13.8% to 15%, with a reduced earnings threshold of £5,000 (down from £9,100). These changes mean higher payroll expenses, especially for Web3 startups with multiple employees. To offset this, the employment allowance, which helps small businesses reduce their NIC liability, will increase to £10,500. Consider reviewing your payroll structure and taking advantage of allowances where possible to manage these costs.
What should I be aware of in terms of inheritance planning if I have significant cryptocurrency assets?
The government has frozen inheritance tax (IHT) thresholds until April 2030, meaning that more estates, especially those with appreciating assets like cryptocurrency, may be subject to IHT. As digital asset values rise, this threshold freeze could lead to a higher tax burden for those passing on substantial crypto holdings to heirs. If you have significant crypto or digital assets, it's a good idea to work with a financial planner to develop a tax-efficient estate plan that considers these changes
DISCLAIMER
© My Accountancy Team 2024 All Rights Reserved – The above articles are provided for guidance only and may not cover your personal circumstances so you should not rely on them. It is important that you seek appropriate professional advice which takes into account your personal circumstances where you can provide the full facts of the case and all documents related to your case. My Accountancy Team Ltd t/a mycryptotax.co.uk, cannot be held responsible for the consequences of any action or the consequences of deciding not to act.
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