UK Keeps 'No Gain, No Loss' Tax Policy on DeFi Transactions—What It Means for Investors

UK Proposes DeFi-Friendly Tax Framework to Ease Crypto Lending and Liquidity Pool Activities

The United Kingdom is set to introduce a novel taxation approach aimed at simplifying rules for decentralized finance (DeFi) participants. The proposed framework emphasizes deferred capital gains taxes on activities like crypto lending and liquidity pool participation, aligning tax obligations more closely with the actual economic activities rather than instantaneous taxable events.

Under the new proposal from HM Revenue and Customs (HMRC), taxable gains or losses will now be calculated when liquidity tokens are redeemed, based on the difference between the tokens received and the initial contribution. This move could significantly reduce upfront tax burdens for DeFi users, allowing them to engage more freely in borrowing and liquidity provision without immediate tax liabilities.

Currently, deposits into crypto protocols are taxable events, with capital gains rates in the UK ranging from 18% to 32%. This creates a disincentive for active DeFi participation, as users face tax implications regardless of whether they realize actual gains. The proposed "no gain, no loss" approach signals a shift toward recognizing the nuance in crypto activities, especially for users borrowing stablecoins against collateral or providing liquidity into pools.

Industry Reception and Implications

Sian Morton, marketing lead at Relay Protocol, described the move as a «meaningful step forward,» arguing that it aligns tax treatment more accurately with market realities. She highlighted that this clarity could encourage more innovative DeFi activity within the UK, fostering a more vibrant ecosystem.

Maria Riivari, a lawyer working with the DeFi platform Aave, noted the potential for broader international influence, stating, “This change would bring clarity that DeFi transactions do not trigger tax until tokens are truly sold.” Her comments suggest other jurisdictions might observe and consider adopting similar approaches.

Stani Kulechov, CEO of Aave, welcomed the proposal as “a major win for UK DeFi users who want to borrow stablecoins against their crypto collateral.” Nonetheless, he emphasized that the framework is still under consideration, with HMRC continuing stakeholder engagement to assess its practical implementation and legislative viability.

Source: Maria Riivari

Despite the optimism, HMRC clarified that the proposal is not final. The agency is actively consulting with industry stakeholders—including representatives from platforms like Binance, venture firms such as a16z, and trade associations like Crypto UK—to ensure the framework comprehensively addresses various transaction types and remains practical for users to implement.

As the UK continues to refine its approach, the move signals a positive shift toward more thoughtful crypto regulation—one that could serve as a reference point for other nations seeking to strike a balance between fostering innovation and ensuring fiscal compliance.

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