UK to Defer Crypto Capital Gains Tax Until Sale Under New DeFi Rules

His Majesty's Revenue and Customs (HMRC) is set to overhaul how crypto activity in decentralized finance is taxed, shifting away from the widely criticized 2022 approach that could trigger liabilities on routine token transfers. Under new legislation titled "Tax treatment of cryptoasset loans and liquidity pools," HMRC will introduce a "no gain, no loss" (NGNL) framework. The change means moving tokens into smart contracts for lending, liquidity pools, interest-bearing protocols, or as collateral will generally be treated as tax-neutral, with Capital Gains Tax (CGT) deferred until an "economic disposal" occurs. The rules are due to take effect on April 6, 2027, and HMRC estimates around 700,000 DeFi users will benefit from the CGT deferral. HMRC defines taxable "economic disposal" events as situations such as selling crypto on an exchange, swapping one cryptoasset for another asset, or withdrawing more assets from a liquidity pool than were originally deposited. At the same time, the tax authority is drawing a clear line between capital gains treatment and income. Tokens and returns received through minting, mining, airdrops, staking, interest, rewards, and even payments for work will be treated as miscellaneous income and taxed under Income Tax rules in the year received, at rates up to 45%. The new regime will also be paired with stricter transaction reporting and recordkeeping expectations. The UK has committed to adopting the Organization for Economic Cooperation and Development (OECD) CryptoAsset Reporting Framework (CARF), first announced in November 2023. From 2027, HMRC expects crypto platforms to provide transaction history data to help verify which assets qualify for NGNL deferral. Compared with the prior model, the guidance is designed to reduce administrative burden for both taxpayers and the authority. The move also aligns with the Financial Conduct Authority (FCA) aim of positioning the UK as a globally competitive crypto hub.