Britain Is Changing How It Taxes Crypto. DeFi Users Will No Longer Face Immediate Capital Gains Bills.

The United Kingdom is overhauling the way it taxes certain cryptocurrency transactions, becoming one of the first major economies to formally recognize that lending digital assets and participating in decentralized finance liquidity pools do not always represent a meaningful change in ownership.

The move comes as governments worldwide continue refining cryptocurrency regulations amid broader efforts to attract digital asset businesses while improving tax compliance. The debate has intensified in recent years as countries compete for leadership in financial technology at a time when geopolitical tensions and shifting global capital flows have increased interest in alternative financial systems.

Britain’s tax authority, HM Revenue & Customs (HMRC), announced Monday that qualifying crypto lending and decentralized finance (DeFi) liquidity pool transactions will receive “no gain, no loss” treatment beginning April 6, 2027, according to a policy paper published by the agency and first reported by Bitcoin Magazine.

Under the new framework, Capital Gains Tax will generally be deferred until an individual makes an economic disposal of the underlying cryptocurrency rather than when assets are temporarily transferred into lending arrangements or liquidity pools.

The policy amends the Taxation of Chargeable Gains Act 1992 and applies to individuals and trustees participating in qualifying cryptoasset lending and liquidity pool arrangements. HMRC said the change is intended to align the tax treatment of these activities with their underlying economic substance.

The new rules cover three primary scenarios. For cryptoasset lending arrangements, users exchanging cryptocurrency for an interest in the same type of asset will receive no-gain-no-loss treatment. Borrowed cryptoassets will be treated as acquired at their market value at the time of borrowing, while collateral used in the transaction will generally be disregarded for Capital Gains Tax purposes, according to the HMRC policy paper cited by Bitcoin Magazine.

Automated market maker arrangements, commonly known as liquidity pools, will receive similar treatment. Users who contribute cryptoassets and later withdraw the same quantity of those assets will not trigger a taxable event. Any difference between the amount deposited and the amount withdrawn will instead determine whether a gain or loss has occurred, HMRC said.

The policy change follows several years of discussions between regulators and the cryptocurrency industry. HMRC launched a call for evidence in 2022 before opening a formal consultation in 2023 after stakeholders argued that earlier guidance imposed disproportionate administrative burdens on DeFi participants.

HMRC estimates the new framework will affect approximately 700,000 individuals and said the revised approach should make the tax system easier to understand, according to the agency’s announcement.

The United Kingdom’s existing framework generally treats cryptocurrency as an investment asset. Selling, spending or exchanging crypto typically constitutes a taxable disposal subject to Capital Gains Tax rates of 18% for basic-rate taxpayers and 24% for higher-rate taxpayers, CoinDesk reported in its coverage of the HMRC announcement.

Britain’s latest move comes amid broader efforts to establish itself as a global digital asset hub. Earlier this year, the UK government advanced legislation aimed at strengthening oversight of stablecoins and crypto service providers while providing greater regulatory clarity for the industry, Reuters reported.

Other jurisdictions have also been reassessing cryptocurrency taxation. The United States continues debating federal legislation governing digital assets, while the European Union has implemented its Markets in Crypto-Assets (MiCA) framework to establish a common regulatory approach across member states, according to previous reporting by Reuters.

Industry groups have long argued that taxing temporary transfers of crypto assets into lending protocols or liquidity pools creates outcomes that do not accurately reflect economic ownership. HMRC said the revised treatment is designed to ensure gains and losses are recognized only when a participant makes a meaningful disposal of their holdings.

The policy paper stated that final cost estimates for the measure will be reviewed by the Office for Budget Responsibility and disclosed during a future fiscal event. HMRC added that the change is not expected to have a significant macroeconomic impact.