UK to defer DeFi capital gains tax until actual crypto disposal
HMRC will no longer treat DeFi deposits as taxable disposals, a policy shift that spares 700,000 UK crypto users from heavy administrative burdens and aligns tax liabilities with actual economic outcomes.
The UK’s HM Revenue & Customs will defer capital gains tax on cryptoassets deposited into decentralised finance lending protocols and liquidity pools. Under a policy paper published Monday, these transactions will receive "no gain, no loss" treatment, meaning tax will only apply when an investor makes a genuine economic disposal of the tokens. The rules take effect on 6 April 2027.
The change amends the Taxation of Chargeable Gains Act 1992 and reverses HMRC's 2022 guidance, which treated the mere act of moving tokens into a DeFi arrangement as a taxable disposal. That interpretation forced users to calculate and pay capital gains on paper profits before actually selling any assets, creating what the treasury acknowledged as disproportionate administrative burdens.
The new framework covers three primary DeFi activities: lending a single cryptoasset, borrowing one, and supplying tokens to automated market makers that power liquidity pools. Entering or exiting these arrangements in the same asset will no longer trigger a tax event. Capital gains tax will only be due upon a real disposal, or in the case of liquidity pools, if a user withdraws a different quantity of tokens than they originally deposited. Collateral posted for borrowing is also disregarded for capital gains tax purposes.
HMRC estimates the measure will affect approximately 700,000 individuals and trustees. For the DeFi industry, removing the tax friction on routine transactions eliminates a significant barrier to entry for UK-based capital. Crypto platforms competing for liquidity now have a clear timeline to adjust their compliance and product strategies ahead of the April 2027 implementation date.
The shift follows a multi-year review process originating from a 2022 call for evidence. Stani Kulechov, founder of the DeFi lending protocol Aave, called the approach "the right direction." He argued that any other treatment would have "saddled taxpayers with heavy paperwork," framing the decision as evidence that industry feedback can shape regulatory policy. Kulechov also highlighted separate, forthcoming HMRC plans to tax stablecoins more like money.
The final costing of the tax deferral still requires certification by the Office for Budget Responsibility.
