HMRC outlines deferred capital gains taxation for crypto lending and liquidity pool users, signaling regulatory clarity for UK decentralized finance.
The United Kingdom has proposed a new tax framework for decentralized finance (DeFi) designed to ease the burden on crypto users. HM Revenue and Customs (HMRC) suggested a “no gain, no loss” approach, deferring capital gains taxes until the underlying token is sold. The policy would cover lending out tokens, borrowing arrangements, and moving assets into liquidity pools, allowing taxable gains or losses to be calculated only when liquidity tokens are redeemed.
Under current rules, depositing funds into a DeFi protocol can trigger capital gains taxes ranging from 18% to 32%, regardless of the purpose of the deposit. The proposed framework aims to align taxation with the actual economic outcome of DeFi activities.
Industry Response: Positive Signal for Crypto Regulation
The proposal has received support from the crypto industry as a meaningful step forward for UK DeFi users. Experts noted that it clarifies that DeFi interactions do not trigger taxes until tokens are sold, providing much-needed certainty for borrowers and liquidity providers.
Sian Morton from Relay protocol highlighted that the framework better reflects the real economic impact of borrowing stablecoins against crypto collateral. Similarly, Aave’s legal representative Maria Riivari said the policy provides clarity that tax obligations are deferred until a true sale occurs, a stance echoed by Aave CEO Stani Kulechov, who described it as a major win for UK DeFi participants.
Consultation and Next Steps
The tax proposal is not yet finalized. HMRC is continuing discussions with stakeholders to assess the viability and scope of the framework, ensuring it covers the full range of DeFi transactions and remains practical for individual compliance.
The initial consultation received 32 formal written responses from industry participants, including crypto exchange Binance, venture firm a16z Capital Management, and trade association Crypto UK. HMRC emphasized that these consultations are critical to shaping legislation that reflects the evolving DeFi ecosystem.
The proposal underscores the UK government’s progressive approach toward cryptocurrency regulation while balancing innovation with fiscal oversight.
Disclaimer
This content is for informational purposes only and does not constitute financial, investment, or legal advice. Cryptocurrency trading involves risk and may result in financial loss.