UK Implements 'No Gain, No Loss' Tax Policy for Crypto Lending and Liquidity Pools

The UK’s HM Revenue & Customs announced a new tax policy that treats specific cryptoasset transactions, such as lending and liquidity pool activities, as 'no gain, no loss.' This means that users will not be liable for Capital Gains Tax until they make an economic disposal of their crypto assets. The policy, effective from April 6, 2027, applies to individuals and trustees involved in these arrangements. It amends the Taxation of Chargeable Gains Act 1992 to better align tax treatment with the economic realities of DeFi activities.

Under the new rules, in a single cryptoasset lending setup, a user who exchanges or acquires an interest in the same type of cryptoasset will be taxed on a no-gain-no-loss basis. Borrowing arrangements will consider borrowed cryptoassets as acquired at market value at the time of borrowing, disregarding collateral for tax purposes. For liquidity pools operated via smart contracts, acquiring an interest in exchange for the same cryptoasset will also be taxed on a no-gain-no-loss basis, with gains or losses recognized only upon actual disposal.

This change aims to simplify the tax process for DeFi participants and address issues caused by previous guidance, which was seen as burdensome. The policy is expected to benefit around 700,000 individuals engaged in these activities, providing a clearer framework that reflects the economic substance of their transactions.

Currently, UK tax law treats crypto as an investment asset, with sales or swaps subject to Capital Gains Tax at rates of 18% or 24%. The new approach modifies this rule for specific DeFi activities, potentially reducing the tax burden and administrative complexity for users involved in crypto lending and liquidity pools.

The measure's overall impact on the macroeconomy is expected to be minimal, with HMRC noting no significant macroeconomic effects. Final fiscal details will be reviewed by the Office for Budget Responsibility and announced at a future fiscal event.