The UK tax authority, His Majesty’s Revenue and Customs (HMRC), has introduced significant changes to the approach to taxing decentralized finance (DeFi), particularly regarding crypto loan operations. Under the new regulatory policy, HMRC will adhere to a “no profit, no loss” scheme, which effectively postpones Capital Gains Tax until the point of the actual sale of crypto assets, rather than the moment they are used within DeFi protocols.
Previously, there was uncertainty regarding how HMRC would treat the movement of crypto assets within DeFi protocols for the purpose of collateral or providing liquidity. There was a risk that such operations could be deemed a “disposal” of assets for Capital Gains Tax purposes, potentially leading to an immediate tax liability even if no actual profit had been realized.
HMRC has now officially confirmed that the transfer of crypto assets as collateral for obtaining a loan or for providing liquidity in DeFi pools will not be treated as a chargeable event triggering Capital Gains Tax until the actual sale (realization) of those assets occurs. This approach significantly reduces the tax burden and operational complexity for investors and DeFi market participants in the UK.
