The UK’s HM Revenue & Customs said certain disposals tied to cryptoasset lending and liquidity pools will be treated on a no-gain-no-loss basis, pushing any Capital Gains Tax charge back to the point when a user makes an economic disposal of the underlying cryptocurrency. The measure was published Monday.
According to the policy paper, the change takes effect on April 6, 2027 and applies to individuals and trustees who enter cryptoasset loan arrangements and liquidity pool arrangements. It amends the Taxation of Chargeable Gains Act 1992.
Three scenarios covered by the policy
The rules cover three scenarios.
In a single cryptoasset lending arrangement, a user who acquires or disposes of an interest in exchange for cryptoassets of the same type as those invested will be taxed on a no-gain-no-loss basis.
For borrowing arrangements, borrowed cryptoassets will be treated as acquired at market value at the time of borrowing. Any collateral will be disregarded for Capital Gains Tax purposes.
For automated market-making arrangements, meaning liquidity pools operated through smart contracts, a user who acquires an interest in exchange for the same type of cryptoasset will also be taxed on a no-gain-no-loss basis. When the user exits, that treatment continues to apply to the extent the participant receives back the same quantity first invested. Any difference between what was invested and what is received will trigger a gain or a loss.
HMRC says tax treatment should match economic substance
HMRC said the change is intended to align tax treatment with the economics of these arrangements, recognizing gains and losses only when a participant makes an economic disposal.
The measure also addresses issues that followed HMRC’s own 2022 guidance. According to the policy paper, stakeholders said that guidance created disproportionate administrative burdens.
Consultation followed earlier 2022 guidance
A call for evidence ran from July to August 2022. That was followed by a consultation from April 27 to June 22, 2023, which aimed to align tax treatment with economic substance by not treating crypto used in DeFi lending and liquidity pools as a taxable disposal.
HMRC published a summary of responses at Budget 2025 and set out its approach at that time.
The paper says the change is expected to affect about 700,000 individuals who engage in these transactions. HMRC added that users will benefit from a framework that is easier to understand.
How the new approach changes the current regime
Under the current UK regime, crypto is treated as an investment asset. Selling, swapping, or spending crypto counts as a disposal for Capital Gains Tax purposes. The policy paper says the rate is 18% for basic-rate taxpayers and 24% for higher-rate taxpayers.
The new treatment changes how that disposal rule applies in certain lending and liquidity pool arrangements.
HMRC also said final costing will be subject to scrutiny by the Office for Budget Responsibility and will be set out at a future fiscal event. The agency said the measure is not expected to have any significant macroeconomic impact.
This report first appeared in Bitcoin Magazine and was written by Micah Zimmerman.
