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HMRC have published the outcome of a consultation on the tax treatment of individuals who invest in cryptoassets using Decentralised Finance (DeFi) lending and staking transactions. The consultation response provides an update on activity in this area. A final decision on whether or not to make legislative changes has not yet been made. Engagement with stakeholders is to continue, and the government will consider the merits of changing taxation in this area.
The legislative change under consideration is enacting no gain, no loss relief where individuals enter into lending and staking DeFi arrangements in circumstances where a tax charge would currently arise on the making of an investment. The intention is to defer taxation until an economic disposal occurs.
HMRC and the government are considering the activity undertaken in this area. Specific mention is made of cryptoasset loans and liquidity pools in the context of areas under consideration for legislative change.
When considering whether to make a legislative change, the government wishes to strike the right balance between fostering innovation and growth but also protecting the integrity of the tax system. The government notes that the rules in place must be practical for individuals who make these investments to apply.
At this stage HMRC and the government are focused on the taxation of individuals.
Once the government has finalised the position for individuals, it will consider whether any changes made can or should be extended to corporates.
A timeline for further updates and/or legislative changes has not been provided.
Investors in cryptoassets will be pleased to see an update on this ongoing consultation process, and will await further updates with interest. Reporting is a key consideration, and so investors will be considering both when tax liabilities will arise, and when reporting needs to be done.