UK to delay capital gains tax on DeFi loans and liquidity pools

The UK is changing how it taxes crypto used in decentralized finance, giving investors a cleaner line between using a protocol and selling an asset. HM Revenue & Customs said deposits into DeFi lending arrangements and liquidity pools will no longer count as taxable disposals for capital gains tax purposes.

Capital gains tax is charged when an asset is sold or otherwise disposed of for a profit. Under the new approach, HMRC said tax will be pushed to the point where there is an actual disposal, rather than triggered when a user moves crypto into certain DeFi arrangements.

The measure was published Monday in an HMRC policy paper and is due to take effect on 6 April 2027. HMRC said it will amend the Taxation of Chargeable Gains Act 1992 and estimated that about 700,000 individuals and trustees using crypto loans and liquidity pools will be affected.

What changes for DeFi users

Decentralized finance, or DeFi, refers to crypto services that run through blockchain-based software rather than a traditional bank or broker. In lending protocols, users can lend crypto, borrow crypto, or post tokens as collateral. In liquidity pools, users supply tokens that help automated market makers, which are smart contracts that match trades without a central order book.

HMRC said the new rules will apply “no gain, no loss” treatment in three situations: lending a single cryptoasset, borrowing a single cryptoasset, and providing tokens to an automated market maker. That means the act of entering or leaving those arrangements, when the same asset is involved, will not by itself create a capital gains tax bill.

A taxable gain or loss can still arise later. HMRC said that would happen when there is a real disposal of the assets, or in the case of a liquidity pool, when a user withdraws a different amount of tokens than they originally deposited. Collateral used to support borrowing will also be ignored for capital gains tax under the measure.

Why HMRC is changing course

HMRC’s 2022 guidance said moving tokens into a DeFi arrangement could itself be treated as a disposal. That meant users could face a tax calculation before selling crypto for cash or otherwise realizing an economic gain.

According to HMRC, feedback from stakeholders said that approach created an administrative burden that was out of proportion to the activity being taxed. The new policy is designed to make the tax treatment match the economics of DeFi transactions more closely.

The decision follows a process that began with a 2022 call for evidence, continued with a 2023 consultation, and led to a summary of responses at Budget 2025.

Stani Kulechov, founder of the DeFi lending protocol Aave, welcomed the move on X, calling it “the right direction.” Kulechov said industry feedback helped shape the change and argued that a different approach would have left taxpayers dealing with unnecessary paperwork.

For UK crypto users, the practical takeaway is timing. HMRC is not removing capital gains tax from DeFi activity. It is saying that, once the rule takes effect, the tax point should come when the investor actually disposes of the asset, rather than when they put it to work inside a qualifying DeFi loan or pool.

This story draws on original reporting from Decrypt.