HMRC consultation on the taxation of DeFi transactions

Following certain updates to HMRC’s Cryptoassets Manual in February 2022 concerns were raised regarding the application of the current tax rules to DeFi cryptoasset lending and staking transactions.

A particular concern was that the UK tax system can treat DeFi loans and staking as disposals for capital gains purposes notwithstanding that a loan or staking of tokens does not involve a disposal of the economic ownership of those tokens. There could be a mismatch between tax outcomes and the underlying economic substance of transactions and possibly a ‘dry’ tax charge in circumstances where no actual gain has been realised from which to meet the tax liability. Moreover being subject to a chargeable gain on disposal (with the...