UK defers capital gains tax on DeFi lending and pools

HM Revenue & Customs announced that deposits of crypto into DeFi lending protocols and automated market-maker (AMM) liquidity pools will be treated as “no gain, no loss” for capital gains tax purposes. The change takes effect on 6 April 2027 and HMRC estimates it will affect about 700,000 individuals and trustees.

The policy paper amends the Taxation of Chargeable Gains Act 1992 to exclude three specific transactions from being treated as taxable disposals where the same asset is used to enter and exit the arrangement: lending a single cryptoasset, borrowing a single cryptoasset, and supplying tokens to an AMM. A gain or loss will arise only when an investor makes a genuine economic disposal, or when a liquidity pool withdrawal returns a different quantity or mix of tokens than were supplied. Collateral posted to secure a loan will be disregarded for capital gains tax.

HMRC said the change responds to feedback that its 2022 guidance created disproportionate administrative burdens by treating transfers into DeFi arrangements as disposals. Under the earlier guidance, users could face paperwork and potential tax bills even though no economic sale had taken place.

The measure follows a multi-year process that began with a 2022 call for evidence, continued through a 2023 consultation and was summarised at Budget 2025. HMRC expects the Office for Budget Responsibility to certify the final costing. The April 2027 start date gives crypto users and the protocols that serve them more than a year to prepare; the government will legislate the amendment ahead of that date.

DeFi protocols run on smart contracts. AMMs are the software that lets users swap tokens and supply assets to pooled trading. Under the new tax treatment, moving tokens into those smart contracts will not trigger capital gains tax provided the same asset is deposited and later withdrawn. A taxable event can still occur if a liquidity provider withdraws a different mix of tokens or when tokens are sold on the open market.

Industry figures welcomed the clarification. Stani Kulechov, founder of Aave, tweeted that the decision was “the right direction” and credited industry feedback for shaping the outcome. He also highlighted separate HMRC plans to treat stablecoins more like money for tax purposes.

HMRC said the change narrows the circumstances in which capital gains tax applies to DeFi activity while preserving tax on clear economic disposals. The final fiscal impact remains subject to official costing.