HMRC's July 2022 consultation, 'The taxation of Decentralised Finance involving the lending and staking of cryptoassets – call for evidence', asks for views on the consistency between the economic and tax treatment of lending and staking transactions and puts forward three different options for tax treatment. 

  • Decentralised Finance (DeFi) is an umbrella term used to describe services akin to traditional financial services that are provided using distributed ledger technology (DLT).
  • DLT uses cryptography to maintain a decentralised database acting as a ledger. This means that DeFi transactions do not rely on the functions of centralised intermediaries such as banks, brokerages, or traditional exchanges. 
  • DeFi involves the pooling and lending of assets to other individuals or entities to generate passive income returns which are often described as interest.

Some 'stakeholders' have told the government that:

  • There are circumstances where the current rules for Capital Gains Tax (CGT), when applied to DeFi lending and staking, are inconsistent with the substance of the activity.
  • There also maybe situations where the tax rules treat transactions as disposals where the effective economic ownership of cryptoassets is retained. This can lead to tax outcomes that do not reflect the economic effects, and to a tax liability from a transaction where no gain has been realised in a form which can be used to meet the liability.
  • There is also a need to determine and record the market value of assets at each step in the transaction may also give rise to a disproportionate administrative burden.

Current tax treatment

A transaction involving lending or staking has three main elements that need to be considered for tax purposes:

  • The lending or the making available of an asset:
    • The tax treatment depends on whether the beneficial ownership of the asset has been transferred. If not, then this part of the transaction has no tax impact. If beneficial ownership has been transferred, it is considered a disposal for Capital Gains Tax purposes.
  • The return from the lending of the asset:
    • The tax treatment depends on the type of arrangement but could result in a return subject to Income Tax or in some situations Capital Gains Tax.
  • The repayment of the asset:
    • The tax treatment will again depend on whether or not the beneficial ownership has been transferred.

Government's policy proposals options

A summary of options put forward in the paper include:

  • Option 1 - Legislate to bring DeFi lending and staking within the Repo and Stock Lending rules by defining cryptoassets as ‘securities’. The repo regime, prevents a CGT charge by following the underlying economic substance of the transaction and treating the sale and repurchase as if it were a loan.
  • Option 2 - Legislate to create separate rules for DeFi lending and staking, along the lines of those applicable to repos and stock lending: this would remove from the scope of CGT some lending and staking activities.
  • Option 3 - Apply a ‘no loss no gain’ treatment to DeFi loans and staking, deferring any CGT tax liability until the assets are economically disposed of. 

In addition, the government would be interested to consider other options for change that are in line with the principles and objectives set out above. Suggestions of further options would therefore be welcome.


This consultation asks whether intended policy achieves:

  • Tax neutrality of economically equivalent activities.
  • The alignment of the tax and economic consequences of the transaction.
  • Minimising the administrative burden in reporting transactions.

How to respond

Replies can be made via email: This email address is being protected from spambots. You need JavaScript enabled to view it.

The call for evidence closes on 31 August 2022.

Note that:

  • This call for evidence only concerns the tax treatment for investors participating in DeFi lending and staking. Other DeFi activities are not in scope. Also out of scope is the tax treatment of transactions entered into by an individual or entity as part of a trade, such as running a platform.
  • For those carrying on a trade in the UK, the outcome of the transactions will be reflected in their trading profits for tax purposes rather than subject to capital gains rules. The question of whether assets are used in a trade is a question of fact determined by reference to case law. However, HMRC would normally expect a platform to be trading.
  • An individual holding cryptoassets and engaging in DeFi transactions is unlikely to be trading. It should be noted that there will also be no UK tax implications for individuals who are not UK resident but who transact with a UK-based platform.

Consultation Questions

Question 1:

HMRC would like more information about the UK DeFi lending and staking sector. Please provide any information you hold that is relevant to the following questions. Where appropriate, please summarise data using appropriate ranges or categories, rather than providing only totals or minima and maxima.

  • How many DeFi lending and staking platforms are you aware of that are based in the UK? What is the approximate value of their assets?
  • Approximately how many UK-based individuals engage in DeFi lending and staking, and how much do they lend/stake?
  • How many non-UK based individuals are served by UK platforms and what amounts do they invest?
  • How frequently do individuals transact, and what is the duration of each lending or staking transaction?
  • Approximately what percentage of UK-based individuals engaging in DeFi are services wholly or mainly by UK platforms? Where else are the platforms UK individuals use commonly based?

Question 2:

Bearing in mind that UK individuals are subject to the same tax treatment for DeFi lending and staking wherever the platforms they use are located, does the current tax treatment make the UK less attractive to platforms as a place of business? If so, which jurisdictions are favoured and why?

Question 3: 

Approximately what proportion of DeFi lending and staking transactions give rise to disposals for tax purposes under the current rules?

Question 4: 

Of the transactions giving rise to the disposals, what proportion would fall within the (i) Repo rules and (ii) Stock Lending rules, if cryptoassets were treated as securities?

Question 5:

Do you favour changes to the current rules?

Question 6:

  • Do you consider Option 1 to be a suitable model for DeFi lending and staking transactions? What are the pros and cons?
  • If appropriate, should the Repo, the Stock Lending or both regimes be expanded to apply to DeFi transactions?

Question 7:

  • Do you consider Option 2 to be a suitable model? What are its pros and cons?
  • Should the new rules be modelled on the Repo rules or the Stock Lending rules, or would both sets of rules be needed to cater for different contractual arrangements?

Question 8:

Do you consider Option 3 to be a suitable option? What are its pros and cons?

Question 9: 

Are there alternative approaches to the taxation of DeFi lending and staking that have been adopted by other jurisdictions that the government could consider? If so, please provide more details and reasons.

Question 10: 

Besides the options outlined above, are there any further options for change that the government could consider?

Question 11: 

How could the government be confident that any proposed rules would not discriminate in favour of users of DeFi services?


Useful guides on this topic

How are Bitcoin, cryptocurrencies or cryptoassets taxed in the UK?
How do you tax Bitcoin? Are cryptocurrency or cryptoasset gains or profits, taxable? Can you obtain tax relief if you make losses on Bitcoin? Gains on transactions in cryptoassets are potentially taxable in the same way as other investments. 

How are Cryptoassets taxed in the UK?  At a glance (Freeview)
How do you tax Bitcoin? Are cryptocurrency or cryptoasset gains or profits, taxable? Can you obtain tax relief if you make losses on Bitcoin? 

External links

The taxation of Decentralised Finance involving the lending and staking of cryptoassets – call for evidence

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