The UK is set to make it easier for cryptocurrency investors to participate in lending and decentralized finance (DeFi) without triggering an immediate tax bill.
HM Revenue & Customs (HMRC) announced new rules on Monday that will treat certain crypto lending and liquidity pool transactions as “no gain, no loss”. Effective from 6 April 2027, the changes mean that users will generally not be liable for Capital Gains Tax (CGT) when moving eligible crypto assets into lending protocols or DeFi liquidity pools.
The tax, however, is deferred until the investor makes a real economic disposal of the asset, for example by selling or exchanging the cryptocurrency.
The move is aimed at aligning the tax treatment of these transactions more closely with how they actually work.
What will the new rules include?
Under the new rules, users who lend cryptocurrencies and are paid an interest in return, provided they get back the same type of cryptoasset, will not have an immediate taxable event. The same goes for taking their assets out of the lending set up.
HMRC is also adjusting its approach to crypto borrowing. The market price of the cryptoassets borrowed at the start of the loan will be used and any collateral used to secure the loan will generally be ignored for Capital Gains Tax purposes.
The changes also affect DeFi liquidity pools, intelligent contracts where users deposit electronic assets to allow trading on decentralised exchanges.
The same no-gain-no-loss treatment will also apply to a transaction where an investor deposits crypto into an eligible liquidity pool and subsequently withdraws the same cryptocurrency and same amount. But if they get a different amount than they originally deposited, any difference still could lead to a taxable gain or loss.
The change aims to tax investors when they actually realise a gain, not when they move assets from DeFi protocol to DeFi protocol. The reform comes after years of talks between the government and the crypto industry.
HMRC accepted that its previous guidance, issued in 2022, had too often treated DeFi lending and liquidity pool transactions as taxable disposals when investors had not actually sold their assets. Industry participants said the approach generated unnecessary paperwork and tax calculations that did not reflect the economic reality of how these products operate.
The government has decided to amend the rules following feedback from consultations in 2022 and 2023. HMRC says the updated framework should help around 700,000 people in the UK who use crypto lending and liquidity pools.
Broader tax rules for cryptocurrencies will remain unchanged
In most cases, selling, swapping or spending crypto will still be considered a disposal for Capital Gains Tax purposes. The new policy carves out an exception for some lending and DeFi activities and allows tax to be deferred until investors actually exit their positions.
The government said the updated framework should make crypto taxation easier to understand, while reducing administrative burdens for users.
The changes also represent a more pragmatic approach by U.K. regulators as DeFi continues to grow. The new rules don’t tax every technical transaction of electronic assets but rather the point at which investors realise an economic gain or loss.
That could make it much easier for crypto users to participate in lending protocols and liquidity pools from a tax perspective, and give them more certainty as to when Capital Gains Tax is actually due.
