The UK government is moving to ease the tax treatment of decentralized finance (DeFi) transactions, proposing a “no gain, no loss” approach for crypto lending and liquidity pool arrangements.

The proposal, aimed at aligning tax rules with the economic realities of DeFi, could provide significant relief for users who have faced complex reporting requirements and unintended tax liabilities under the current system.

Under existing rules, depositing crypto into lending protocols or contributing tokens to automated market makers (AMMs) can trigger a capital gains tax event, even if the user has not actually realized any gain.

This has created challenges for DeFi users who frequently move assets, resulting in heavy administrative burdens and tax outcomes that do not match economic reality.

The proposed “no gain, no loss” (NGNL) model would defer capital gains tax until a true economic disposal occurs, meaning that users would only pay tax when they sell or otherwise dispose of assets in a way that generates a real gain or loss.

HM Revenue and Customs (HMRC) has indicated that this approach would apply to a range of DeFi activities, including single-token loans, multi-token AMMs, and crypto borrowing, provided certain conditions are met.

If a user deposits tokens and later receives the same amount back, the interim transactions would not trigger capital gains tax.

Similarly, in multi-token arrangements, tax would only be applied if the number of tokens returned differs from the amount originally contributed, reflecting the actual economic outcome.

The proposal has received broad support from industry stakeholders, including major DeFi platforms such as Aave, Binance, and advisory firms like Deloitte.

Many respondents to HMRC’s 2023 consultation highlighted that the current tax rules impose disproportionate administrative burdens and fail to reflect how DeFi transactions operate in practice.

Supporters argue that the NGNL model is a practical way to reduce complexity while maintaining fairness in the tax system.

Nevertheless, some challenges remain. High volumes of transactions could still create reporting difficulties for individual users, and there is a need for clear guidance and software solutions to manage compliance.

HMRC has acknowledged these concerns and continues to engage with industry participants to refine the rules and ensure that any future legislation is workable.

The government has not yet set a timeline for when the new rules might take effect, and users are advised to continue following the existing tax framework for the time being.

The proposed NGNL framework is part of a wider effort by the UK government to modernise its approach to cryptoasset taxation.

In addition to DeFi, HMRC plans to implement the Cryptoasset Reporting Framework (CARF) from 1 January 2026, requiring UK-based reporting service providers to collect and report information about resident crypto users.

The new rules aim to provide clarity and consistency while keeping the scope focused on typical DeFi tokens, excluding securities and tokenised real-world assets.

For DeFi users, the shift to a “no gain, no loss” model could be transformative.

By recognising that not all movements of crypto represent economic disposals, the UK is acknowledging the unique nature of decentralised financial markets.

This change may reduce unintended tax liabilities and simplify compliance, allowing users to engage with lending, staking, and AMM platforms with greater confidence.

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