Key Points:
The UK government is seeking feedback on modifying DeFi lending and staking tax treatment. The goal of the consultation is to establish a tax regime that aligns with the economic substance of cryptoassets used in DeFi transactions and reduces administrative burdens on users. Proposed changes would no longer treat the use of cryptoassets in DeFi transactions as a disposal for tax purposes. Instead, a tax disposal would occur only when the cryptoassets are economically disposed of in a non-DeFi transaction.
The consultation will run for eight weeks, from 27 April 2023 to 22 June 2023. HMRC invites feedback from investors, professionals, firms engaged in DeFi activities (including technology and financial service firms, trade associations and representative bodies, academic institutions, think tanks, legal, accountancy, and tax advisory firms). The consultation explores a legislative change to the tax treatment of DeFi lending and staking, as well as the lending and staking of cryptoassets done through an intermediary.
The DeFi lending and staking tax policy approach aims to be neutral, fair, and practical and is not designed to replace the broader regulatory framework for cryptoassets. The government intends to establish clear tax and regulatory treatment of cryptoassets, and to position the UK at the forefront of safe, sustainable, and rapid innovation in cryptoasset and blockchain technologies.
| A user lends or stakes tokens and: | CGT event | Taxation of DeFi return |
|---|---|---|
| Withdraws the same quantity of the same type of tokens at the end of the term (see example 1 below). | No CGT consequences. | Taxed when it is received by the user. |
| During the term of the agreement it becomes apparent that the borrower will not be able to return some/all of the tokens at the end of the term. | Disposal of tokens when it becomes known that the borrower will not return them. | Taxed when it is received by the user. |
| At the end of the agreement the borrower does not return some/all of the tokens. | Disposal of tokens at the end of the agreement. | Taxed when it is received by the user. |
| During the term of the agreement the user sells the rights to the staked tokens to another party (see examples 3 and 4 below). | Disposal of staked tokens when the rights are sold. | The accrued return on the tokens which were sold is taxed at the time of sale. |
DISCLAIMER: The Information on this website is provided as general market commentary and does not constitute investment advice. We encourage you to do your own research before investing.
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