The UK government has confirmed a major change to its tax policy on crypto loans and liquidity pools, drawing positive reactions from key players in the digital asset sector. On July 13, HM Revenue and Customs (HMRC) announced that providing tokens for lending or depositing assets into liquidity pools will no longer be considered a taxable event that triggers capital gains tax obligations.
Key tax rules for crypto lending and liquidity pools
Scheduled to come into effect on April 6, 2027, the new regime will apply a “no gain, no loss” (NGNL) rule for approximately 700,000 crypto holders in the UK who use crypto lending and liquidity services. Under this approach, investors will only owe taxes when they actually dispose of their tokens—by selling, swapping, or spending them—instead of at the moment the assets are provided to protocols.
HMRC’s policy outlines three possible scenarios. When an investor swaps tokens in return for an interest in the same class of asset, the transaction will receive NGNL treatment. Borrowers are considered to acquire the borrowed assets at current market value when taking out the loan. Any collateral posted is excluded from capital gains calculations at this stage.
The NGNL rule also applies to decentralized finance (DeFi) activities using automated market makers and smart contracts. If the amount withdrawn matches the original deposit, no immediate tax event occurs. However, if a user withdraws more or less than the tokens initially provided, any difference between the input and output is subject to capital gains or losses.
Mini dictionary: HMRC, or His Majesty’s Revenue and Customs, is the UK government department responsible for tax collection and administering various regulatory systems.
| Action | Old Tax Treatment | New Tax Treatment (from April 2027) |
|---|---|---|
| Lending tokens / liquidity pool deposits | Capital gains tax triggered on deposit | No gains taxed until assets sold or swapped |
| Withdrawal matches deposit | Tax event on withdrawal | No tax if withdrawn amount equals deposit |
| Withdrawal differs from deposit | Taxed on difference | Taxed on difference |
Reasons for the tax adjustment
HMRC stated the overhaul aims to better reflect the true economic context of crypto transactions and ensure investors are not taxed until they actually exit their positions. The July 13 policy paper amends the Taxation of Chargeable Gains Act 1992 and addresses concerns raised in 2022, when earlier guidance created significant administrative burdens for users and faced industry resistance.
DeFi users will benefit by avoiding additional paperwork and recurring tax calculations each time tokens are deposited. However, standard capital gains tax rates of 18% for basic-rate and 24% for higher-rate taxpayers will still apply when assets are eventually sold, swapped, or used as spending.
Industry welcomes the move
Industry leaders have praised the regulatory update. Stani Kulechov, the founder of Aave—a leading decentralized lending platform—described HMRC’s decision as a step in the right direction and highlighted how the change demonstrates the impact of industry consultation on policy formation. Kulechov stressed the importance of reducing unnecessary tax administration for crypto users and signaled strong support for the move in public comments.
Stani Kulechov observed that the revised tax approach from HMRC not only supports growth in the crypto lending sector but also demonstrates how industry input can shape regulatory outcomes, sparing users from added paperwork.
Aave holds a significant presence in DeFi lending, with more than $13.3 billion in total value locked according to data from DeFiLlama. This accounts for a substantial share of the approximately $38 billion currently held in crypto lending protocols worldwide.
In addition to the loan changes, HMRC released a separate policy on stablecoins. Under the proposal, certain qualifying stablecoins will be exempt from capital gains tax for individuals, with interest-like earnings taxed as savings income. This exemption is projected to impact around 1.2 million users and is set to take effect from April 2027.
Next steps and legislative outlook
The fiscal implications of the loans policy have not yet been detailed, and the Office for Budget Responsibility will evaluate the costs at a future event. HMRC said no significant effects on the wider economy are expected. The draft legislation, expected in due course, will specify the full eligibility criteria and precise arrangements before the 2027 start date.
