UK to Defer Capital Gains Tax on DeFi Lending, Liquidity Pool Deposits
Moving crypto into a lending protocol or liquidity pool won’t count as a taxable disposal, deferring the charge until a real cash-out.
The United Kingdom government has announced plans to defer capital gains tax (CGT) on crypto assets deposited into decentralized finance (DeFi) lending protocols and liquidity pools. Under the new framework, moving digital assets into such protocols will no longer be treated as a taxable disposal at the point of deposit. Instead, any CGT liability will be triggered only when a user ultimately withdraws and converts their holdings into cash or another asset outside the DeFi ecosystem.
Previously, UK tax authority HM Revenue & Customs (HMRC) treated the transfer of crypto into DeFi protocols as a disposal event, meaning users could face an immediate tax bill even without receiving any fiat proceeds. This approach drew criticism from the crypto industry, which argued it created a significant barrier to participation in DeFi and placed UK-based users at a competitive disadvantage compared to participants in more accommodating jurisdictions.
The policy change is expected to provide meaningful relief to retail and institutional participants engaged in yield farming, liquidity provision, and decentralized lending. Industry observers suggest the move could encourage greater adoption of DeFi activity within the UK, reducing incentives for users to relocate operations offshore purely for tax efficiency purposes.
The government has not yet confirmed a precise implementation date or full legislative details. Market participants and tax professionals are expected to closely monitor forthcoming HMRC guidance to understand how edge cases — such as token swaps within protocols — will be treated under the revised rules.
Source: Decrypt
