United Kingdom: Closed consultation on a legislative change to the taxation of cryptoassets used in DeFi lending and staking transactions (DeFi transactions)

On 22 June 2023, the public consultation closes on the HM Revenue and Customs (HMRC) legislative change to the taxation of cryptoassets used in DeFi lending and staking transactions (DeFi transactions). The HMRC notes that DeFi transactions are services similar to traditional financial services but are provided by ledger technology. DeFi lending service users can deposit their tokens and receive a financial return, commonly referred to as interest, although it does not hold the same capital gains tax (CGT) implications. Moreover, individuals who own cryptoassets, known as liquidity providers, can contribute their tokens to a platform's liquidity pool alongside other users. The act of supplying liquidity to the platform is called "staking" and enables the platform to perform various DeFi services using the pooled tokens. To incentivise cryptoasset owners to provide liquidity, the platform offers a financial return, usually paid periodically throughout the arrangement or at its conclusion, referred to as "the DeFi return." According to the HMRC proposed legislative changes, the utilisation of cryptoassets in DeFi transactions would no longer be considered as triggering tax disposal. Instead, the tax disposal would occur when the cryptoassets are economically disposed of in a non-DeFi transaction. The stakeholders were invited to submit comments and information regarding the proposed rules, including their ability to cover all the DeFi lending and staking models and the unforeseen consequences that the adoption of such rules may have.