Limited Company vs Individual: Crypto Taxation Guide for UK Investors in 2024  

The UK’s Autumn Budget 2024 introduced increased capital gains tax (CGT) rates, directly impacting cryptocurrency investors. CGT rates have risen to 18% for basic-rate taxpayers and 24% for higher-rate taxpayers, up from the previous 10% and 20%. These changes make it essential for crypto investors to evaluate whether to operate as an individual or through a limited company.

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Key Differences: Limited Company vs. Individual

1. Operating as an Individual

Advantages:

• Simplicity: Fewer administrative requirements and compliance obligations.
• Annual Tax-Free Allowance: £3,000 CGT exemption in 2024/25.

• Lower upfront costs without company setup or accounting needs.

Disadvantages:

• Higher CGT Rates: Individuals face 18% (basic rate) or 24% (higher rate) on taxable crypto gains.
• Limited ability to reinvest or defer taxes compared to a company structure.

2. Using a Limited Company

Advantages:

• Corporate Tax Rate: Profits taxed at 25%—potentially lower than combined CGT and income tax rates for high earners.
• Reinvestment Flexibility: Retain profits in the company without immediate tax liabilities.
• Expense deductions: Costs such as software, electricity (mining), and transaction fees can reduce taxable profits.

Disadvantages:

• Administrative burden: Annual accounts, corporation tax filings, and compliance requirements.
• Dividend tax: Extracting profits incurs additional taxes at 8.75%, 33.75%, or 39.35%, depending on income levels.

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Worked Examples

Example 1: Basic-Rate Taxpayer with £50,000 Crypto Gains

• Individual:
  • Taxable gain: £50,000 – £3,000 (allowance) = £47,000.
  • Tax split:
    • £37,700 × 18% = £6,786.
    • £9,300 × 24% = £2,232.
  • Total tax: £9,018.
• Limited Company:
  • Corporate tax: £50,000 × 25% = £12,500.
  • Dividend tax (after retaining £5,000):
    • £37,700 × 8.75% = £3,296.25.
    • £6,300 × 33.75% = £2,125.25.
  • Total tax: £17,921.50.

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Example 2: Higher-Rate Taxpayer with £50,000 Crypto Gains

• Individual:
  • Taxable gain: £50,000 – £3,000 = £47,000.
  • Entire gain taxed at 24% = £11,280.
• Limited Company:
  • Corporate tax: £50,000 × 25% = £12,500.
  • Dividend tax (higher rate):
    • £44,000 × 33.75% = £14,850.
  • Total tax: £27,350.

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When to Consider a Limited Company

Using a limited company may be advantageous in the following situations:

1. NFT Creators and Sellers

• Income Type: NFT sales are considered trading income rather than capital gains.

Advantages:

• Taxed at 25% (corporate rate) vs. up to 45% (personal income tax).
• Allows deduction of business-related expenses like marketing and platform fees.
• Intellectual property (e.g., NFT collections) can be monetized strategically.

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2. Cryptocurrency Mining

• Income Type: Mining profits are treated as trading income.

Advantages:

• Substantial expenses (e.g., hardware, electricity) can reduce taxable profits.
• Retain profits in the company for reinvestment in new equipment or scaling operations.

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3. Staking Rewards

• Income Type: Rewards are classified as income and subject to tax.

Advantages:

• Corporation tax may be lower than income tax on high earnings.
• Rewards can remain within the company to avoid immediate personal tax liabilities.

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When Not to Use a Limited Company

• Small or Occasional Gains: Investors with modest gains falling within the annual CGT allowance may find personal taxation simpler and more cost-effective.
• Basic-Rate Taxpayers: If gains remain within the basic-rate band, individuals often pay less tax overall.

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Conclusion

Deciding between a limited company or operating as an individual depends on factors such as income level, trading activity, and reinvestment goals.

• Operate as an individual: Suitable for occasional investors, especially basic-rate taxpayers with manageable gains.
• Incorporate a company: Beneficial for NFT creators, miners, stakers, or frequent traders aiming to scale their operations.

Professional tax advice is essential to optimize your approach and ensure compliance with evolving regulations.

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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.