UK Proposes Major DeFi Tax Overhaul in a "Meaningful Step Forward"

The United Kingdom has revealed a proposed tax framework that is aimed at easing the burden on decentralized finance (DeFi) users. The key players in the industry are calling it a significant step towards adding clarity to the crypto regulations. The plan was released by HM Revenue and Customs (HMRC) on Wednesday and introduced it as a “no gain, no loss” approach that defers capital gains tax (CGT) obligations for certain DeFi transactions until the underlying asset is fully disposed of. 

Deferred Capital Gains for DeFi

Under the proposed rules, the crypto users who lend, borrow assets, or provide liquidity in DeFi protocols would no longer trigger capital gains tax (CGT) at the moment of depositing funds. Instead, HMRC suggests a “no gain, no loss” approach, meaning taxes would apply only when the original tokens are ultimately sold. 

Currently, the UK CGT can range from 18% to 32%, and even moving tokens into a liquidity pool may create a taxable event. The new proposal shifts taxable gains or losses to the point when liquidity tokens are redeemed and calculated based on how many underlying tokens users receive back compared to what they initially contributed. 

New Framework Taken as a Positive Sign

The crypto sector has responded positively to the suggested reforms. Sian Morton, the marketing lead at Relay, called the proposal a “meaningful step forward for UK DeFi users who borrow stablecoins against their crypto collateral, and moves tax treatment closer to the actual economic reality of these interactions.”

Aave lawyer, Maria Riivari, said that the change “would bring clarity that DeFi transactions do not trigger tax until you truly sell your tokens. Other countries facing similar questions may want to take note of HMRC’s approach and the depth of research and consideration behind it.”

Aave CEO Stani Kulechov said the proposal was “a major win for UK DeFi users who want to borrow stablecoins against their crypto collateral.”

However, despite the strong industry support, HMRC emphasized that the tax overhaul is still under consideration. The agency said it will continue engaging with stakeholders “to assess the merits of this potential approach, and the case for making legislative change to the rules governing the taxation of crypto asset loans and liquidity pools.” 

The initial consultation drew 32 formal written submissions from individuals, businesses, tax experts, and organizations such as Binance, a16z, and Crypto UK.