Crypto investors in the UK have long struggled to understand how DeFi transactions should be taxed. While trading tokens on centralised exchanges follows a clear HMRC guidance framework, tax implications of activities such as lending, staking or providing liquidity via DeFi protocols are far less obvious.

In 2023, HMRC launched a public consultation to clarify the rules. The central question was: when you interact with a DeFi protocol by lending, staking or providing liquidity, are you making a taxable disposal? If not, at what point does the CGT event occur?

The current tax rules: when DeFi may trigger a CGT event

Under HMRC’s current guidance (CRYPTO60000+), a DeFi transaction can be treated as a disposal if it involves a change in beneficial ownership. This can include sending tokens into a smart contract or liquidity pool, even where you expect to receive back the same type and quantity of tokens later. HMRC’s reasoning is that by transferring tokens you may be giving up ownership of one asset and receiving another right in return, such as an LP token, which is enough to create a Capital Gains Tax (CGT) event. Whether ownership has changed depends on the contract terms and on whether the recipient has control over the tokens.

That means you must compare the market value of what you give up with the cost basis of what you originally paid. The outcome can be a gain if the token’s value has risen, a loss if it has fallen or zero if the values are identical. Even when the result is zero, the disposal is still reportable under HMRC’s rules.

Why? Because HMRC may consider the transfer as a change in beneficial ownership. That means Capital Gains Tax (CGT) could apply immediately, even if:

• you retain economic exposure to the token;

• you didn’t receive any cash or fiat;

• you eventually get the same type and quantity of tokens back.

This treatment creates practical challenges for taxpayers:

• every interaction that HMRC treats as a disposal must be reported, even if the computed gain is zero;

• you may have to fund a CGT bill in fiat even though you only hold tokens;

• you must determine market value at the time of transfer, which can be technically complex.

These are the rules you must apply for your 2024/25 Self Assessment, due by 31 January 2026.

What HMRC proposes (in 2023): a new tax framework for DeFi

In 2023, HMRC launched a public consultation to address these problems. The central proposal was to disregard disposals when tokens are lent or staked, as long as the user retains equivalent economic ownership. In practice, this would mean no CGT on the initial transfer into a protocol, with CGT applying only when tokens are actually sold, swapped, or otherwise disposed of. HMRC also suggested treating all DeFi returns as income, to remove the current ambiguity between income and capital.

Important: these proposals are not part of UK law. As of 2025, HMRC’s current guidance continues to apply.

If adopted, the new framework would mean:

• no CGT when tokens are lent or staked under terms that preserve economic ownership,

• CGT only when tokens are economically disposed of (e.g. sold, swapped, used for purchases),

• the same treatment applying to both DeFi and centralised platforms (CeFi).

To qualify, a transaction must meet all of these conditions:

• tokens are transferred to another party or via smart contract;

• the lender retains the right to withdraw an equivalent amount;

• the borrower or platform is obliged to return the same type and quantity;

• the right to withdraw can be exercised at the end or on demand.

If these conditions are not met, for example if the protocol returns a different token or an uncertain amount, then CGT may still apply at the time of the transfer.

DeFi Returns: Income or Capital?

When you earn something from DeFi, whether it’s staking rewards, yield from a liquidity pool, or periodic payouts from lending, the key question is: does HMRC see that return as income or as capital?

Today the answer depends on the facts of the arrangement. A return that is predictable and paid periodically, like interest, is normally treated as miscellaneous income and taxed in the year you receive it. A return that is uncertain and linked to the capital itself, such as a one-off uplift you realise only when you exit the position, can fall under CGT. That split makes every DeFi product a judgement call.

HMRC’s 2023 consultation proposes scrapping the distinction entirely: every DeFi return would be taxed as income at its market value when you receive it. If adopted, that would mean staking rewards and pool yields are always income, no matter how the protocol structures them. CGT would still come into play if you sell or transfer the rights attached to your position, for example selling an LP token before redeeming it, or if you permanently lose your tokens, such as in a platform collapse.

How This Affects You as a UK Taxpayer

As of 2025, the consultation on DeFi tax has closed, but no draft legislation has been published. This means that for your 2024/25 Self Assessment, due by 31 January 2026, you must still apply the current HMRC guidance: most DeFi interactions that involve a change in beneficial ownership are disposals, and any returns must be assessed case by case as income or capital.

If the government’s proposals are eventually adopted, the rules would look different. Transfers into lending, staking or liquidity pools would no longer trigger CGT as long as you keep the right to reclaim the same type and quantity of tokens. Returns would always be taxed as income at the time you receive them. However, a CGT event would still arise if you sold the rights attached to your staked assets, such as liquidity tokens, or if the platform collapsed and you lost access to your tokens.

In every case, HMRC expects detailed records. You should track when you enter and exit each position, what rights or tokens you receive, and the market value of any income at the time of receipt. Without this, it becomes almost impossible to defend your Self Assessment if queried.

CryptoBooks Helps You Track and Declare DeFi Activity

Managing DeFi activity isn’t just about pulling in wallet data: it’s about classifying every transaction the way HMRC expects. CryptoBooks does the heavy lifting for you: it imports your full history from wallets and platforms, identifies when you entered a staking, lending or liquidity position, and checks whether beneficial ownership changed. Each movement is categorised as income, capital, or neutral, so you can immediately see which events are taxable and why.

You stay in control: every transaction is visible, editable and linked to the underlying wallet data. If something looks off, you can review it and adjust before filing.

When it’s time to report, CryptoBooks generates ready-to-file Self Assessment outputs, including SA108 for capital gains and SA100 for income, aligned with HMRC’s matching rules. And if the law changes, the software updates the classification automatically.

You start with a completely free account and only pay if you decide to download your Self Assessment forms and tax reports. That way you can track your DeFi activity, see your position in real time, and choose when to upgrade.