- The UK government proposed a new tax framework for decentralized finance (DeFi) users that defers capital gains tax on crypto lending and liquidity pool participation.
- The “no gain, no loss” approach delays taxable events until tokens are sold or liquidity tokens redeemed.
- Current capital gains tax rates in the UK range from 18% to 32%, depending on the transaction.
- Industry experts view the proposed change as a clearer and fairer reflection of economic activity in DeFi.
- The proposal is under review with ongoing stakeholder engagement and is not yet finalized.
The UK government introduced a new tax proposal on Wednesday to ease capital gains taxes for users involved in decentralized finance (DeFi). The framework targets activities like crypto lending, borrowing, and providing liquidity to pools, allowing tax to be deferred until the underlying tokens are sold. The policy update was proposed by HM Revenue and Customs (HMRC) as a “no gain, no loss” approach, meaning taxable gains or losses would only be calculated when liquidity tokens are redeemed, comparing the number of tokens returned to those initially contributed, according to the official proposal.
Currently, depositing funds into a DeFi protocol may trigger capital gains tax immediately. In the UK, these taxes vary between 18% and 32% ($22-$39 per $100) depending on the specific action, as outlined on the government website.
Responses from the crypto industry have been positive. Sian Morton, marketing lead at the crosschain payments system Relay Protocol, said the new approach is a “meaningful step forward for UK DeFi users who borrow stablecoins against their crypto collateral.” Maria Riivari, lawyer at the DeFi platform Aave, noted that the change “would bring clarity that DeFi transactions do not trigger tax until you truly sell your tokens.” Aave CEO Stani Kulechov called it “a major win for UK DeFi users who want to borrow stablecoins against their crypto collateral.” These views were shared on their respective social media posts, here, and here.
The proposal is still under review, and HMRC said it continues to engage with stakeholders to evaluate the approach’s coverage and compliance feasibility. The agency also wants to ensure the regulations properly address the variety of DeFi transactions before making any legislative changes. The consultation process gathered 32 written responses from individuals, businesses, tax professionals, and representative organizations including crypto exchange Binance, venture firm a16z Capital Management, and self-regulatory trade body Crypto UK.
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