UK to Defer Tax on DeFi Transactions
HMRC will defer tax on certain crypto loans and liquidity pools until assets are actually disposed of.
The UK tax authority, HMRC, is changing how certain decentralised finance (DeFi) transactions are taxed. From 6 April 2027, transferring cryptoassets into qualifying lending arrangements and automated liquidity pools will no longer immediately trigger capital gains tax. Tax will instead become due only when the assets are effectively disposed of in economic terms.
The new rules will apply to individuals and trustees and will require amendments to the Taxation of Chargeable Gains Act 1992.
Under the current system, selling, exchanging or transferring cryptoassets may be subject to capital gains tax. The rate is 18% for basic-rate taxpayers and 24% for those in the higher tax bracket.
HMRC aims to avoid taxing transactions in which users transfer assets to a lending protocol or liquidity pool while retaining their economic interest in the cryptoassets. The new rules are expected to affect around 700,000 people.
The change follows criticism of HMRC guidance published in 2022. Industry representatives argued that the guidance could create tax liabilities even when no actual profit had been made. HMRC began gathering feedback in July 2022 and held a formal consultation in 2023. Its findings were published alongside the 2025 Budget, and the new approach was confirmed on 13 July 2026.
The legislation will cover three scenarios. When a single type of cryptoasset is lent, transferring the assets and receiving an interest in return will not result in a taxable gain or loss, provided the arrangement involves the same cryptoasset.
The loaned assets will be valued at their market price on the date of the loan. The return of the same cryptoasset will be treated as a disposal at that same value. Any collateral provided will not be included in the tax calculation.
Similar rules will apply to automated, smart contract-based liquidity pools containing at least two qualifying cryptoassets. When a user exits a pool, tax-neutral treatment will apply only to an amount equal to the original contribution. Any difference will result in a taxable gain or an allowable loss.
