UK Defers Taxation on Crypto Asset Financing and Liquidity Pools Until 'Sale'｜Adopts No Gain, No Loss Approach

The UK government and HM Revenue and Customs (HMRC) have announced a groundbreaking bill to fundamentally review the traditional taxation model in light of the sustained growth of decentralized finance (DeFi).

The HMRC in the UK has adopted new tax laws related to the lending of crypto assets and liquidity pools. The main point is that deposits into lending protocols will be treated as "No Gain, No Loss" (NGNL), effectively...

The new system, which will come into effect on April 6, 2027, will defer the capital gains tax (CGT) on lending and deposits into liquidity pools until the final sale.

Under the 2022 guidelines previously adopted by HMRC, users faced the risk of capital gains tax being triggered on paper even before actual cashing out, as moving or depositing tokens into DeFi platforms or liquidity pools was considered a "disposal of assets." This mechanism was criticized as a "dry tax" and imposed excessive administrative burdens on investors and practitioners.

The newly introduced "No Gain, No Loss" rule classifies the movement of tokens via smart contracts as a "tax-neutral" event. Specifically, in the case of transactions involving the same asset, taxation will not apply at the start or end of the process in the following three scenarios:

• Lending a single crypto asset
• Borrowing crypto assets (assets provided as collateral are also exempt from taxation)
• Supplying tokens to a liquidity pool (automated market maker: AMM)

Definition of 'Economic Disposal' Triggering Taxation

Under the new system, the only instances that will truly be subject to taxation are those moments when assets are effectively relinquished, termed "economic disposal."

This includes selling to fiat currency on exchanges, exchanging for other crypto assets, or withdrawing assets from a liquidity pool that exceed (or fall short of) the initial deposit amount. The current capital gains tax rate in the UK applies between 18% and 24%, depending on the taxpayer's income level.

On the other hand, caution is required regarding the treatment of "miscellaneous income" arising from DeFi usage. Staking rewards, mining income, airdrops, interest, various incentives, and crypto assets received as rewards will be considered income, and a maximum income tax of 45% will be imposed in the year received.

Strict Data Tracking and Outlook for Implementation in 2027

This tax reform is estimated to affect approximately 700,000 individual investors and trustees residing in the UK.

To avoid tax disputes, HMRC is concurrently building a strict transaction tracking system. Based on the OECD (Organisation for Economic Co-operation and Development) CARF (Crypto Asset Reporting Framework) that the UK has announced, from 2027, transaction history data will be directly provided to HMRC from each platform, and it will be rigorously checked whether the NGNL rule applies.

Stani Kulechov, founder of the leading DeFi lending platform Aave, praised this decision as a "step in the right direction" and a good example of the industry's voice being reflected in policy. With over a year until implementation, users and protocols will have ample preparation time.

This easing measure aligns with the vision of the FCA (Financial Conduct Authority), which aims to position the UK as a global crypto asset hub, and is expected to support the healthy maturation of the market.

Disclaimer: This content is provided for general branding and informational purposes only and doesn't constitute financial, investment, legal, or tax advice. Any events, rewards, online events, or related information mentioned herein should not be considered a recommendation, solicitation, or invitation to purchase, sell, trade, or otherwise deal in any crypto assets or to use any services. Crypto assets are highly volatile and may result in loss. WEEX services and online events may not be available in all regions and are subject to applicable laws, regulations, and eligibility requirements. You are responsible for ensuring that your use of WEEX services complies with local laws and for carefully assessing the risks before participating in any crypto-related activities.