4 - 7 minute read
Tax Advisors in the United Kingdom have welcomed new proposed rules for decentralized finance (DeFi) lending and staking activities, calling it a positive step that offers some “certainty” for the crypto industry. His Majesty’s Revenue and Customs (HMRC), the UK government’s tax branch, announced it will be consulting crypto stakeholders for the next eight weeks on its plan. The new framework proposes that capital gains tax charges for DeFi lending or staking be triggered only with some activities – and not for all transactions.
“This is a positive step for the crypto asset industry in the U.K. Whilst regulators may appear in the U.S. to be creating confusion, these moves aim to provide certainty for the U.K. industry,” said Dion Seymour, crypto and digital asset technical director of U.K. tax service provider Andersen in an emailed statement to CoinDesk.
David Lesperance, managing director and tax advisor at Lesperance Associates called the HMRC’s proposal an “excellent result,” in a statement. Meanwhile, lawmaker Lisa Cameron, chair of a cross party group for crypto in Parliament, said she was hopeful this would be the first step towards a comprehensive tax framework.
The government said in its consultation that it agreed with industry members who had previously called for specific rules for DeFi markets, similar to those for repo and stock lending. Ian Taylor, board advisor at industry lobby group CryptoUK, told CoinDesk in an interview in July that the crypto industry and its advocates were calling for new crypto tax rules for DeFi lending as the old ones triggered too many taxable events and were “outdated” policies.
While Lesperance believes this will simplify things for the industry, Seymour does not. He pointed to another, in his view simpler, option in the HMRC’s original call for evidence, which proposed treating the transfer of crypto for lending and staking as “no gain no loss” transactions, “deferring the tax liability until the assets are economically disposed of.”
By going with the authority’s proposed approach, which leans on repo and stock lending rules and would only remove some lending and staking activities from the scope of capital gains tax, complicates the tracking of taxable events, according to Seymour. He also noted the potential danger in people thinking there aren’t going to be any taxable events in DeFi.
“The general public who already have a very scant knowledge about how tax works and are even less inclined to actually read HMRC guidance, so the education side is still going to be quite critical,” he said.
The proposal by HMRC to consult crypto stakeholders on DeFi lending and staking activities has been welcomed by tax advisors in the UK who view it as a positive step towards providing certainty for the crypto industry. The new framework proposes that capital gains tax charges for DeFi lending or staking be triggered only with some activities – and not for all transactions. This move has been applauded by Dion Seymour, crypto and digital asset technical director of U.K. tax service provider Andersen, who sees it as a positive step for the crypto asset industry in the UK.
The proposal has also been welcomed by David Lesperance, managing director and tax advisor at Lesperance Associates, who calls it an excellent result. Meanwhile, lawmaker Lisa Cameron, chair of a cross-party group for crypto in Parliament, is hopeful that this will be the first step towards a comprehensive tax framework.
The government has agreed with industry members who had previously called for specific rules for DeFi markets, similar to those for repo and stock lending. The proposal has been made to simplify things for the industry, but it has received mixed reactions. While Lesperance believes this will simplify things for the industry, Seymour does not. He points out that another simpler option proposed treating the transfer of crypto for lending and staking as “no gain no loss” transactions, “deferring the tax liability until the assets are economically disposed of.”
By going with the authority’s proposed approach, which leans on repo and stock lending rules and would only remove some lending and staking activities from the scope of capital gains tax, complicates the tracking of taxable events, according to Seymour. He also notes the potential danger in people thinking there aren’t going to be any taxable events in DeFi.
The Bottom Line
The new proposed rules for decentralized finance (DeFi) lending and staking activities in the United Kingdom have been welcomed by tax advisors, the crypto industry, and lawmakers. The proposed framework proposes that capital gains tax charges for DeFi lending or staking be triggered only with some activities – and not for all transactions. While this move has been applauded, it has also received mixed reactions. Traders need to pay close attention to the consultation results as it may have an impact on the asset in question. There are potential opportunities and risks for traders depending on the final outcome.
