DeFi tax is complicated, even HMRC admits their guidance isn’t perfect. But if you’re staking, lending, or providing liquidity, you still need to know the rules. Here’s what we know so far.

What is DeFi? 

DeFi (Decentralised Finance) lets you lend, borrow, trade, and invest in crypto directly through smart contracts. No bank needed. Platforms like Uniswap, Compound, and Aave are all DeFi.

What does HMRC say about DeFi?

HMRC published their first DeFi-specific guidance in 2022 (‘Decentralised Finance: Lending and Staking’). It applies to all prior transactions, not just those after its release.

The guidance confirms that DeFi may trigger Capital Gains Tax (CGT) or Income Tax depending on two things: whether the reward is ‘capital’ or ‘income’ in nature, and whether you lose ‘beneficial ownership’ of your tokens.

Consultation update: possible ‘no gain, no loss’ rules

HMRC is considering a ‘no gain, no loss’ approach for DeFi deposits. If adopted, staking or lending crypto wouldn’t trigger CGT at the point of deposit. This isn’t law yet, but it could simplify DeFi tax significantly. We’ll update this guide when the outcome is confirmed.

Income tax for DeFi

When earning rewards, they will likely be subject to income tax and should be reported as Miscellaneous Income on your tax return (or trading income, if you are classed as a financial trader).

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Capital gains tax for DeFi

Normal CGT rules apply when you trade crypto on a decentralised exchange. But if ‘beneficial ownership’ of your tokens transfers (i.e. you lose control of them), the following could also trigger CGT:

• Entering or exiting a liquidity pool
• Lending crypto on a DeFi platform
• Depositing crypto as collateral for a loan
• Staking crypto

CGT rates for UK DeFi

*2024/25 is a split year: disposals before 30 October 2024 are taxed at 10%/20%; disposals on or after 30 October 2024 are taxed at 18%/24%.

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Is the reward income or capital?

This is the key question for DeFi tax, and the answer depends on how you earn the reward:

Income: when you’re paid periodically at a known rate for providing a service, like earning new tokens for staking.

Capital: when your return comes from the asset growing in value over time, like LP tokens that increase in worth.

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Liquidity pool taxes 

When you add crypto to a liquidity pool, you usually receive LP tokens in return. If beneficial ownership transfers, this creates a disposal of your original tokens and an acquisition of the LP tokens. When you remove liquidity, the reverse applies.

Rewards earned through LP token value increases are likely capital. New tokens earned periodically are likely income. Some protocols give you both, which complicates things further.

Staking crypto

Stakers earn rewards for locking up crypto. If the reward is income in nature, it’s taxed as miscellaneous income. If capital, the gain is realised based on the growth in asset value. You also need to consider whether beneficial ownership changes when you stake. If you want to know more about the tax applicable to crypto, check out our ultimate guide to crypto tax in the UK.

One thing to watch: staking rewards can be taxable at the point they’re ‘receivable’ — meaning they’ve been credited to your account and you could claim them, even if you haven’t actually withdrawn them yet. This is particularly relevant if your rewards auto-compound or you’re choosing to leave them unclaimed.

Lending and borrowing

Lenders: CGT or Income Tax may apply depending on the nature of the reward and whether beneficial ownership changes.

Borrowers: receiving a loan is an acquisition of tokens. Repaying it is a disposal, subject to CGT.

What does ‘beneficial ownership’ mean?

It’s about whether you still control your tokens. If you can withdraw them freely, you likely retain beneficial ownership. If the protocol restricts your access, ownership may have transferred, triggering CGT. Check the terms and conditions of the specific protocol you’re using.

CARF: your exchange is now reporting to HMRC

From January 2026, UK exchanges are required to report your transaction data directly to HMRC. Every trade, transfer, and deposit will be visible.

55–95% of UK crypto holders are estimated to be non-compliant. The window for easy voluntary disclosure is closing. Use Recap and speak to a Crunch accountant to get ahead.

FAQs

Is staking crypto taxable in the UK?

Usually yes. Staking rewards are typically taxable as miscellaneous income — and they can be taxable from the point they’re credited and claimable, even if you haven’t withdrawn them. You may also need to consider CGT if beneficial ownership changes when entering or exiting the staking position.

Do I pay tax when entering a liquidity pool?

Potentially. If beneficial ownership of your tokens transfers to the pool, entering creates a CGT disposal. The LP tokens you receive are an acquisition.

Will the ‘no gain, no loss’ rules change things?

HMRC is consulting on this. If implemented, depositing crypto into DeFi protocols wouldn’t trigger CGT. It would be a significant simplification, but it’s not law yet.

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Key Takeaways 

DeFi taxes are complex because the tax treatment depends on the mechanisms of the protocol and activity you are engaging in. You need to consider the nature of the reward and whether beneficial ownership is transferred and there are multiple tax consequences based on those factors. Very generally, if you do not lose beneficial ownership of your asset and earn new tokens then your rewards will likely be subject to income tax. When beneficial ownership transfers and you earn rewards through the increasing growth of an asset, it's likely you need to consider capital gains. 

HMRC DeFi guidance is vague and not really fit for purpose. Although it is currently being reviewed and we hope to see change, it’s important to comply with current tax rules.

Navigating DeFi tax calculations and reporting can be tricky which is why tools like Recap and professional tax assistance are essential to submitting an accurate tax return. To start calculating your crypto taxes head to recap.io and connect your exchanges and wallets. You can also reach out to Crunch’s team for tax advice.

The information provided in this article is for general informational purposes only and should not be construed as financial or tax advice. We recommend consulting with a qualified tax advisor or financial professional who can provide personalised advice tailored to your specific circumstances.