To make the UK a hub for cryptocurrency, Prime Minister Rishi Sunak announced the tax break in December 2022. The country already provides resident cryptocurrency traders with tax advice. HM Revenue and Customs released a consultation in July 2022 to get opinions from investors and industry experts on how to tax decentralized finance (DeFi).
The extensive Financial Services and Markets Bill, which, if passed into law, would give local financial regulators more control over cryptocurrencies, is currently being debated in Parliament. The UK Treasury also intends to begin a consultation on how the cryptocurrency industry can be regulated in the upcoming weeks.
This exemption is crucial for luring international investors, as it ensures that foreign investors won't be forced to pay UK taxes just by hiring UK-based investment managers. This exemption has been expanded to cover crypto assets in order to support the UK's status as a hub for investment management and prevent funds that include them from being discouraged from appointing UK managers.
The financial services reforms, also known as the ‘Edinburgh Reforms’, were unveiled by the Chancellor of the Exchequer earlier on December 9. According to His Majesty's Treasury, the reforms include an extension of the current tax break that enables investors to use a UK-based manager's services without incurring additional tax obligations.
European Union banking and financial market regulations are also intended to be repealed as part of the new financial reforms. The Chancellor's statement says that regulations will be used to carry out the suggested changes.
The Financial Services and Markets Bill will establish a safe regulatory environment for stablecoins.
Aside from crypto taxes, the Financial Services and Markets Bill aims to strengthen regulatory control over the sector. The legislation will increase the Financial Conduct Authority's (FCA) control over domestic crypto operations and advertising. Additionally, a prohibition that would prevent the UK from selling international cryptocurrency is anticipated to go into effect.
In January 2021, the UK government held consultations on crypto assets and stablecoins and since then it has published its response, outlining feedback received from 89 parties and detailing proposed changes to the regulatory landscape.
The UK government has proposed legislation to allow stablecoins to be used as a means of payment and enter the regulatory arena under the supervision of the FCA. This would require stablecoin issuers to hold an equivalent amount of GBP for the issued tokens.
To test trading conventional financial assets using DLT, the Treasury will introduce a financial market infrastructure ‘sandbox’ in 2023. Real customers will conduct transactions in this secure environment while being watched over by regulators. Regulators will have the ability to modify the system to maximise user benefit.
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