UK Treasury seeks input on taxing DeFi staking and lending
The tax treatment of lending and borrowing on decentralized finance (DeFi) protocols could soon be changed in the United Kingdom as the taxation arm of the Treasury is seeking input on a possible new regime.
An April 27 consultation by HM Revenue and Customs will run until June 22 and asks for “investors, professionals and firms engaged in DeFi activities” along with representative bodies and think tanks to submit their views on the government's proposed DeFi tax treatment.
Under the proposed legislative changes, crypto used in DeFi transactions wouldn’t be treated as a disposal for the purposes of tax which usually trigger a Capital Gains Tax (CGT) event.
Instead, CGT would apply — and a taxable event would occur — when cryptocurrencies are disposed of in a non-DeFi transaction.
According to the consultation, a transaction must meet certain criteria to be considered a DeFi transaction.
Specifically, it should involve the initial transfer of crypto assets from a lender to a borrower, or through a smart contract, with the borrower being obligated to return the tokens.
HMRC Update on DeFi Guidance I will take time to digest. But here are some pieces: 1. Clear preference to options 2. They agree it needs to be changed 3. Another call for evidence #crypto #tax #accounting #hmrc https://t.co/O6VrTxNUCk
Additionally, the lender should have the right to withdraw the same amount of tokens that were initially lent or staked.
The aim of the consultation is to establish a framework that “better aligns” the taxation of cryptocurrency assets used in DeFi lending and staking transactions while making it easier for users to comply with the regulations. It noted:
The consultation is the second stage of a five-step process, which will be
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