The UK’s His Majesty’s Revenue and Customs (HMRC) has deferred the charging of capital gains tax on DeFi lending and liquidity pools. According to the officials, this is a “no gain, no loss” rule for certain cryptoasset loans and liquidity pool deposits. The tax has been deferred by the HMRC until an actual economic sale occurs. The updated framework takes effect on April 6, 2027, directly removing the administrative burden of calculating taxes upon simply depositing or withdrawing from DeFi protocols. These decisions were published by HMRC on July 13, 2026.
Depositing, lending, or pooling single cryptocurrency assets is no longer treated as a taxable disposal. Capital Gains Tax (CGT) is deferred until the underlying tokens are sold or swapped for real economic value. This change impacts approximately 700,000 individuals and trust trustees involved in crypto loans and automated market-maker liquidity strategies. While the principal deposit is protected from immediate Capital Gains Tax, any rewards or yield generated from lending and staking remain taxable under existing income tax rules.
Reforms Part of UK’s Broader Digital Asset Strategy
The HMRC reforms to exclude DeFi lending and liquidity pools from capital gains atx is part of the broader reforms to the UK’s digital assets strategy. Under previous HMRC guidance, transferring assets into a smart contract was treated as a taxable disposal. The upcoming amendments to the Taxation of Chargeable Gains Act 1992 aim to resolve this by treating the deposit and subsequent return of the same asset type as a neutral tax event. This update brings tax compliance closer to the actual economics of DeFi and aligns with the UK’s goal to become a global crypto hub.
The upcoming reform will change the crypto regulatory landscape so that there is a significant difference between the current era and the upcoming era. The primary difference is how the UK treats cryptocurrency loans and liquidity pool deposits. Under current rules, depositing assets into a liquidity pool or lending them often triggers an immediate Capital Gains Tax (CGT) event. The upcoming 2027 framework treats these as “no gain, no loss” events, deferring CGT until an actual economic disposal, such as a sale.
As per the current rules, moving your crypto into a lending protocol or depositing it into a liquidity pool (DeFi) is treated as a disposal of the asset. That means you must calculate and pay CGT on the difference between your acquisition cost and the token’s market value at the time of deposit. With the proposed reform, cryptoasset loans and liquidity pool deposits are treated on a “no gain, no loss” basis. This defers your CGT liability until you permanently dispose of the asset, better aligning the tax event with the economic substance of the activity. However, you should note that any yield or rewards earned from these arrangements will still be taxed as miscellaneous income in the year they are received.
The current rules mandate that crypto users are responsible for self-reporting their gains and losses using HMRC’s Section 104 pooling rules, which require maintaining records of all disposals, trades, and cost bases. However, the 2027 reforms arrive alongside the broader implementation of the OECD’s Crypto Asset Reporting Framework (CARF). Under CARF, crypto platforms are legally obligated to automatically report user transaction data, including wallet addresses and gross proceeds, directly to HMRC.
Under the current rules, yield, staking rewards, and liquidity mining payouts are generally treated as miscellaneous income and taxed accordingly upon receipt. However, after the 2027 reforms materialize, any yield or interest earned from these lending and liquidity pool activities will continue to be taxed as income in the tax year they are received.
Regulations Regarding the Use of Stablecoins
As per the new rules issued by HMRC, stablecoins receive a unique dual-layer tax treatment when utilized in decentralized liquidity pools. The rule states that disposals of the “eligible stablecoins” are entirely exempt from all taxes during the given period. The catch is that to be classified as an “eligible stablecoin,” the asset must be backed 1:1 by high-quality fiat currency reserves and widely available as a regulated means of payment. That means algorithmic stablecoins or those backed by other cryptoassets will likely not qualify.
Any interest, yield farming rewards, or liquidity provider (LP) fees earned on your stablecoin deposits inside a pool are not covered by the CGT exemption. These returns are classified as interest-like rewards and will be taxed directly under Savings Income or Miscellaneous Income rules, subject to standard Income Tax rates. However, a corporate entity using stablecoins will not get this CGT exemption. Instead, eligible stablecoin transactions will fall under Corporation Tax loan-relationship rules, meaning they are taxed dynamically based on the exact values recognized in your company accounts.
The Bottom Line
The new rules proposed by HMRC in the UK have made crypto transactions conducive for users. With these new rules coming into effect in 2027, the government expects more users to adopt the use of cryptocurrencies for transactions. This is a step in the right direction, making the UK a digitally well-versed economy, on par with other competing economies.