Britain Prepares DeFi Tax Rules: A Shift That Could Change How Investors Report Crypto Income

A New Phase for DeFi Tax in the UK

HM Revenue & Customs has released its consultation outcome on the taxation of decentralised finance lending and staking, a move that has already caught the attention of outlets covering crypto market news. The document sets out how the government is thinking about future rules and what might change for crypto users in the UK.

Current DeFi tax treatment often creates capital gains tax events when users move tokens into or out of protocols. This has been a major source of confusion because these movements do not always reflect real economic gains. The government wants a system that is easier for investors to follow and closer to how people actually use DeFi.

The leading idea on the table is a no-gain, no-loss model. It would delay capital gains tax until an investor makes a genuine disposal instead of taxing every technical transaction. The approach could ease some of the surprise tax points investors face today, although it still needs to pass through the full legislative process before becoming law.

What Has Actually Changed So Far?

The UK has not introduced new DeFi tax law yet, but HM Revenue & Customs has taken a clear step forward by publishing its consultation outcome. The update lays out how the government is thinking about future rules and where it intends to focus next.

The consultation shows that officials want a simpler and more consistent framework for DeFi lending and staking. They are exploring a model where qualifying transactions do not trigger capital gains tax until an investor makes a real disposal.

This model could apply to lending, liquidity pools, and some staking arrangements, depending on the final criteria in the upcoming legislation.

Although the direction is clearer now, the next step is formal legislation. Draft rules will still need to go through the standard process before any changes take effect.

Why Current DeFi Tax Rules Are Such a Headache

Under current rules, some DeFi transactions are treated as disposals when protocols take control of tokens, meaning movements into or out of platforms can trigger capital gains tax.

ETH price volatility often triggers unexpected taxable disposals under the current rules. (Source: CoinMarketCap.)

This approach can push tax charges into moments that don’t always line up with a user’s actual economic outcome. Many users discover they owe tax before converting gains back into pounds, especially if they move between platforms to buy crypto online, creating avoidable friction for compliance.

The system also demands detailed record-keeping, since investors must track values, timestamps, and digital wallet activity for each transaction. For anyone using multiple pools or platforms, the administrative load can grow very quickly.

How a No Gain, No Loss Model Could Work

The government is considering a no-gain, no-loss approach, which would delay capital gains tax until an investor makes a genuine disposal rather than taxing each transaction inside a protocol, such as selling or exchanging their tokens.

In practice, this could apply to activities like depositing tokens into lending pools or providing liquidity, and may extend to certain staking-style arrangements where long-term ownership remains in place. Under this model, these actions wouldn’t trigger tax at the point of entry or withdrawal if they meet the final conditions set out in legislation.

The government has not yet confirmed the exact conditions for this relief, and the final rules will depend on how the legislation is drafted. Even so, the idea signals a shift towards recognising economic outcomes rather than taxing every technical movement inside a protocol.

A Wider Shift: More Reporting From 2026

From 2026, the UK will adopt the global Crypto Asset Reporting Framework, which requires crypto service providers to collect and share user data with tax authorities.

The system is designed to give HM Revenue & Customs clearer insight into trading activity, including when users swap crypto or make other conversions. The government has already completed its consultations on local implementation and has now put the supporting regulations in place, with the new reporting system due to start in 2026.

For investors, future tax reporting will rely more on platform-supplied data, raising the importance of accurate personal records.

Who Stands To Benefit, and Where Are the Risks?

If the no gain, no loss model becomes law, it’s likely to help DeFi users who move tokens between pools and platforms on a regular basis. They’d deal with fewer mid-flow tax points and would mainly recognise gains when they make a real disposal.

Industry groups argue the approach better reflects real DeFi behaviour, focusing on economic outcomes over technical protocol steps. Government papers reflect similar thinking and show a desire to introduce rules that are easier for investors to follow.

There are still areas that could create uncertainty. Complex products, multi-protocol strategies, and wrapped assets may require detailed guidance once legislation is drafted. These edge cases highlight why investors should continue to follow current rules until the new framework is confirmed.

What UK DeFi Investors Should Do Right Now

Until new rules are finalised, investors should follow current HMRC guidance and keep detailed, accurate records of every transaction. Details, such as wallet activity, timestamps, token values, and conversion rates, can help ensure future tax returns are correct and consistent with platform data.

The arrival of the Crypto Asset Reporting Framework in 2026 is set to give tax authorities far more structured information about crypto activity, from routine wallet movements to how investors react to changes in the Bitcoin price.

Clear documentation will make it easier for investors to match their own reports with the data shared by service providers and avoid future compliance issues.

FAQ

Is the UK’s new DeFi tax regime already in force?

No. The government has outlined its approach, but no DeFi tax legislation has been enacted yet.

What is the no gain, no loss idea in simple terms?

It delays capital gains tax on certain DeFi actions until you make a real sale or disposal.

Will these changes reduce my overall tax bill?

They may reduce frequent taxable events, while real disposals and most staking or yield-style income are still expected to fall under normal tax rules unless future legislation says otherwise.

How does CARF fit into all of this?

CARF expands international crypto reporting from 2026, giving HMRC clearer visibility into users’ transactions and tax residency.

What should I do while waiting for new rules to be confirmed?

Follow current HMRC guidance, keep detailed transaction records and monitor updates on future DeFi tax changes.