- The UK government is seeking views on tax modifications for decentralized finance (DeFi) lending and staking.
- It is initiating an open consultation to gather insights for drafting improved tax legislation on DeFi transactions.
- An HM Revenue and Customs consultation will run from April 27 to June 22, 2023 to hear from DeFi investors, firms and more.
UK Considers Taxation Revisions for DeFi Lending and Staking Activities
The UK government is seeking views on tax modifications for decentralized finance (DeFi) lending and staking. It is initiating an open consultation to gather insights for drafting improved tax legislation on these kinds of transactions. An HM Revenue and Customs consultation will run from April 27 to June 22, 2023 to hear from DeFi investors, professionals, firms, technology companies, financial services firms, trade associations, representative bodies such as legal accountancy and tax advisory firms.
Proposed Tax Revision In Detail
The proposed reforms will reduce the administrative burden on consumers by changing the current Capital Gains Tax (CGT) rules on DeFi which are inconsistent with its lending and staking activity. The proposed changes would ensure that authorities would no longer treat crypto used in DeFi transactions as a disposal for tax purposes – only arising when the crypto assets become economically disposed of in a non-DeFi Transaction. Furthermore the HMRC summarized the consequences of common DeFi scenarios while noting criteria to define economic disposals.
What The Government Aims To Achieve
The UK government aims to create a safe and sustainable environment for rapid innovation in the crypto/blockchain industry placing it at the forefront of innovation within this novel fintech industry. They plan to achieve this by establishing comprehensive regulatory/tax treatment of cryptocurrencies through this public consultation process.
Previous Initiatives By The Treasury
Last April there was a call for evidence released by the UK Treasury into taxation of DeFi lending/borrowing with several calls made for clear legislative pathways concerning crypto assets/products. This public consultation follows up this call looking into measures that can be taken to retain leadership position in Fintech sector regarding these matters.