TLDR
- HMRC will defer CGT on eligible crypto loans and liquidity pools from April 6, 2027.
- The measure applies to individuals and trustees under amended Capital Gains Tax rules in Britain.
- Borrowed cryptoassets will be treated as acquired at market value when borrowing occurs for taxpayers.
- Automated market-making exits trigger gains or losses when returned assets differ from original quantities invested.
- HMRC expects about 700,000 individuals involved in cryptoasset loans and liquidity pools to be affected.
HM Revenue & Customs will apply “no gain, no loss” treatment to certain cryptoasset lending and liquidity pool transactions from April 6, 2027. The measure will defer Capital Gains Tax until a user makes an economic disposal of the underlying cryptoasset.
The policy applies to individuals and trustees entering cryptoasset loan and liquidity pool arrangements covered by the new rules. HMRC said the change will amend Capital Gains Tax law under the Taxation of Chargeable Gains Act 1992.
HMRC Changes Crypto Lending Tax Rules
The new rules cover single cryptoasset lending arrangements where a user gives up cryptoassets in exchange for an interest linked to the same type of asset. In those cases, acquisitions and disposals will be treated on a “no gain, no loss” basis. The approach means tax is not triggered at that stage.
HMRC said the treatment is intended to align tax outcomes more closely with the economic substance of these arrangements. Gains and losses will generally arise only when a participant makes an economic disposal. This changes the current position for some DeFi lending activity.
The measure follows HMRC guidance issued in 2022, which drew feedback from stakeholders over administrative burdens. A call for evidence ran from July to August 2022. A consultation then took place between April and June 2023.
Liquidity Pools Receive New CGT Treatment
Automated market-making arrangements, including liquidity pools operated through smart contracts, are also covered by the measure. Users who acquire an interest in exchange for cryptoassets of the same type may receive “no gain, no loss” treatment. The rule applies where the arrangement involves two or more qualifying cryptoassets.
When a user exits a liquidity pool, the treatment applies only to the extent that the user receives the same quantity originally invested. Any difference between the amount deposited and the amount returned will create a gain or loss. That calculation will be based on the difference in cryptoasset quantity.
Borrowing arrangements will be treated differently under the new framework. Borrowed cryptoassets will be treated as acquired at market value when borrowing takes place. Collateral provided under those borrowing arrangements will be disregarded for Capital Gains Tax purposes.
New Rules Start From April 2027
The policy will take effect from April 6, 2027, and HMRC expects it to affect about 700,000 individuals. The tax authority said users should benefit from a framework that is easier to understand. Trustees entering covered arrangements will also fall within the scope of the measure.
The current UK crypto tax regime treats cryptoassets as investment assets for Capital Gains Tax purposes. Selling, swapping, or spending crypto can create a taxable disposal. The new measure changes that treatment only for specific lending and liquidity pool arrangements.
Basic-rate taxpayers currently face an 18% Capital Gains Tax rate on crypto gains, while higher-rate taxpayers face a 24% rate. Final costing for the policy will be reviewed by the Office for Budget Responsibility. HMRC said the measure is not expected to create a major macroeconomic effect.
The UK crypto tax update gives DeFi users clearer treatment for lending and liquidity pool activity. The change does not remove tax on crypto gains. It defers tax until the user makes an economic disposal covered by the Capital Gains Tax rules.
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