UK to Defer Capital Gains Tax on DeFi Lending and Liquidity Pools

On July 14, 2026, the UK’s HM Revenue & Customs (HMRC) revealed a new tax policy that impacts how crypto investors engage with decentralized finance (DeFi). The policy states that depositing cryptocurrencies into DeFi lending protocols or liquidity pools will no longer be classified as a taxable disposal, thereby deferring any capital gains tax until an actual cash-out occurs. This change will take effect on April 6, 2027.

Previously, according to HMRC's 2022 guidance, transferring crypto into a DeFi arrangement was considered a taxable event, resulting in potential capital gains tax liabilities even before investors sold their assets. The new guidance aims to eliminate this confusion and alleviate the excessive administrative burden encountered by many crypto users. HMRC anticipates that this update will affect approximately 700,000 individuals and trustees who utilize DeFi for loans and liquidity pools.

The updated regulations will amend the Taxation of Chargeable Gains Act 1992 to reflect a "no gain, no loss" philosophy for three scenarios: issuing a cryptoasset for lending, borrowing a cryptoasset, and supplying tokens to an automated market maker, which is a key component of liquidity pools. Under the new rules, entering or exiting these arrangements in the same asset will not trigger tax events, which means taxpayers will only incur a gain or loss when they conduct a true economic disposal. In scenarios involving liquidity pools, a tax implication will occur only if users withdraw tokens in differing amounts from what they initially deposited. Additionally, collateral used for borrowing will be excluded from capital gains calculations.

This policy revision is the culmination of a comprehensive consultation process that has spanned several years, beginning with a call for evidence in 2022 and including a consultation phase in 2023. Stani Kulechov, founder of the DeFi lending platform Aave, has expressed approval of the policy change via social media, asserting that alternative tax treatments would have resulted in cumbersome paperwork for taxpayers.

Moving forward, stakeholders will watch how this tax reform influences the growth of the DeFi ecosystem within the UK and whether it encourages broader adoption among crypto investors who had previously been deterred by the tax implications of engaging with these financial instruments.