Crypto industry representatives said Labour’s decision to hike the top capital gains tax to 24% will increase the burden on small business and investors.

“We’re disappointed that the Chancellor did not take this opportunity to align digital-asset taxation with traditional transactions, and also failed to give the industry further clarity on the tax regime, leaving many startups, scale-ups, and investors in limbo,” a CryptoUK spokesperson told DL News.

The hike in capital gains tax — a levy on profits made from an investment — was announced on Wednesday as part of the Labour government’s first budget.

It’s one way Chancellor of the Exchequer Rachel Reeves wants to plug what she has called a £22 billion black hole in public spending left by the Conservative government.

Reeves’s budget raises the capital gains regime’s lower rate from 10% to 18%, and its top rate from 20% to 24%

Reeves noted that the UK still has a lower tax rate than any European G7 economy, and indeed the raise was more modest than the UK business community had feared.

Brain drain fears

The country’s tech scene had warned that a steep rise could scare small businesses away from Blighty. Many startups compensate their workers in shares of the company, which are taxed for capital gains.

Still, Jack Land, head of UK growth at startup MetaWealth, told DL News that even the uptick of the top rate to 24% risks a brain drain.

Entrepreneurs are now “facing diminished rewards, making the UK less competitive” compared to tax and innovation-friendly global hubs, Land said.

“This policy shift could lead to damaging talent and capital flight risk.”

CryptoUK had warned Reeves that this negative scenario was true also for the UK’s digital-assets businesses.

Crypto is primarily taxed under the capital gains regime, and CryptoUK wants tax policy to be more in line with other kinds of assets.

For example, UK crypto investors can’t put their assets into tax wrappers like ISA accounts as they can with stocks and bonds.

Certain decentralised lending transactions are taxed, whereas the same transactions in the traditional space are not.

Aligning digital assets and traditional assets “would have ensured fairness between the sectors and helped to reduce administrative burdens on businesses, while encouraging more participation in the digital economy,” CryptoUK said.

“The digital-assets industry has an important role to support economic growth and job creation in the UK, but this needs to be done on a level playing field.”

Land agreed with the premise that the move amounted to a missed opportunity for the UK to promote the blockchain sector.

“The UK should be looking at blockchain technology — like stablecoins and tokenised real-world assets — as essential tools for modernising the economy, not barriers to growth.”

Reach out to the author at joanna@dlnews.com.