UK tax authority HMRC has proposed legislative changes to the taxation of decentralized finance (DeFi) lending and staking.
According to the announcement, HMRC is seeking public comment on proposed changes to the tax treatment of DeFi lending and staking.
Under the current rules, DeFi transactions can be considered disposals even if there is no change in asset ownership. This means that DeFi transactions can be considered gifts or sales by lending institutions or liquidity providers, and these are taxable events.
The proposed changes will ensure that DeFi transactions are not considered dispositions for tax purposes. This can only happen when crypto assets are disposed of in economic transactions outside of DeFi.
While the proposed framework targets DeFi lending and staking, it is also intended to apply to centralized finance (CeFi), which involves lending or staking cryptocurrency through intermediaries, the consultation paper said.
HMRC has extended existing tax rules to cryptocurrencies, including tax breaks for foreign investors who buy cryptocurrencies through local agents.
