UK tax agency cracks down on rules around DeFi lending and staking
Her Majesty’s Revenue and Customs (HMRC), the U.K.’s tax agency, on Wednesday, has released a controversial set of guidance that could affect innovation in Decentralized Finance (DeFi).
The updated regulation focuses on the treatment of digital assets specifically for DeFi lending and staking in the UK, and whether returns or rewards from these services are deemed as capital or revenue for taxation purposes. Owing to the cutting edge nature of DeFi these services had fallen into a grey area with tax professionals unsure of how the existing rules apply.
“The lending/staking of tokens through decentralized finance (DeFi) is a constantly evolving area, so it is not possible to set out all the circumstances in which a lender/liquidity provider earns a return from their activities and the nature of that return. Instead, some guiding principles are set out,” the HMRC update stated.
HMRC has updated its guidance on the treatment of crypto and digital assets, specifically for decentralised finance (DeFi) lending and staking in the UK, significantly altering their classification and treatment. Full report and our response here - https://t.co/8XXD0bm34O pic.twitter.com/Q3N7La5FVX
The guidance outlined that returns via staking and lending of DeFi assets will not be treated as "interest" as digital assets in the UK aren’t considered currencies, but rather property for tax purposes.
However, this approach could create tax problems for stakers with the guidance suggesting that in many cases it would indicate that “beneficial ownership of those tokens” had been passed to the platform. This would mean they were disposed of for tax purposes and incur Capital Gains Tax.
Ian Taylor, executive director of CryptoUK asserted the new regulations
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