UK defers crypto capital gains tax on lending and liquidity pools from 2027

HMRC will defer capital gains tax on cryptoasset loans and liquidity pools until an economic disposal occurs, effective April 6, 2027.

The UK's HM Revenue & Customs will treat certain disposals involving cryptoasset loans and liquidity pools as "no gain, no loss," deferring capital gains tax until a user makes an economic disposal of the underlying cryptocurrency.

"This measure will support fairness in the tax system," HMRC said in a policy paper published Monday. "It aligns the tax treatment more closely with the economics of these arrangements by ensuring that gains and losses are generally recognized only when the participant makes an economic disposal of the cryptoassets."

The change, which takes effect April 6, 2027, amends the Taxation of Chargeable Gains Act 1992 and is expected to affect about 700,000 individuals and trustees who use crypto loans and liquidity pools, according to the policy paper. Under current UK law for the 2025-2026 tax year, taxpayers pay between 18 percent and 24 percent for capital gains on crypto transactions, depending on whether they qualify as basic-rate or higher-rate taxpayers.

The measure addresses problems that arose from HMRC's own 2022 guidance, which treated moving tokens into a DeFi arrangement as a taxable disposal, leaving users facing capital gains tax on paper before they had sold anything. Stakeholder feedback flagged that this produced disproportionate administrative burdens, and the new rules are meant to align the tax with the economics of the transactions.

The rules cover three scenarios. In a single cryptoasset lending arrangement, a user who acquires or disposes of an interest in exchange for cryptoassets of the same type as those invested will be taxed on a no-gain-no-loss basis. Borrowing arrangements will treat borrowed cryptoassets as acquired at market value at the time of borrowing, with any collateral disregarded for capital gains tax purposes.

For automated market-making arrangements — liquidity pools operated through smart contracts on Ethereum, Solana, and other chains — a user acquiring an interest in exchange for the same type of cryptoasset is also taxed on a no-gain-no-loss basis. On exit, that treatment holds to the extent the user receives the same quantity first invested. Any difference between what was invested and what is received triggers a gain or a loss.

Industry reaction

"This is the right direction, mainly driven by the industry feedback demonstrating that any other approach would cause significant admin burden for the tax payer," Stani Kulechov, founder and chief executive officer of DeFi lending protocol Aave, said in a post on X.

Kulechov cast the outcome as evidence that industry feedback can shape policy, likening it to what he described as industry influence on a 20,000-pound cap on individual stablecoin holdings, and said the growing body of DeFi tax rules showed the sector maturing. He also flagged separate HMRC plans to tax stablecoins more like money.

Timeline and next steps

The shift caps a multi-year process, running from a 2022 call for evidence through a 2023 consultation to a summary of responses at Budget 2025. The measure's final costing still needs certification by the Office for Budget Responsibility and will be set out at a future fiscal event. HMRC said the measure is not expected to have any significant macroeconomic impact.

The policy gives UK crypto users, and the protocols competing for them, more than a year to adjust before the April 2027 effective date. For DeFi protocols on Ethereum and Solana that rely on UK user participation, the change removes a significant tax friction that may have discouraged lending and liquidity provision.

This article is for informational purposes only and does not constitute investment advice.