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The United Kingdom has introduced a proposal that could reshape how decentralized finance (DeFi) transactions are taxed, marking what industry participants describe as a crucial development in ongoing UK crypto tax reform.
The plan, released by HM Revenue and Customs (HMRC) on Wednesday, outlines a “no gain, no loss” approach that delays capital gains tax obligations for DeFi users until the underlying crypto assets are sold.
The move aims to bring consistency and clarity to an area long viewed as a regulatory grey zone, making the proposal one of the most notable steps in UK crypto tax reform to date.
Under the proposal, lending a token and receiving the same type back, participating in borrowing arrangements, or moving assets into liquidity pools would no longer trigger immediate tax consequences.
Instead, taxable gains or losses would be recognized only when users redeem their liquidity tokens or fully exit their positions. The announcement forms part of the broader UK crypto tax reform efforts, which have drawn attention from DeFi entrepreneurs, tax experts, and global policymakers.
The current system taxes deposits into protocols—regardless of the reason—as disposals, exposing users to capital gains taxes ranging from 18% to 32%.
For many in the industry, the proposed UK crypto tax reform represents a more accurate reflection of how DeFi platforms function economically. This is the central theme driving the debate, as market participants push for clearer and fairer tax treatment.
Responses from key figures in the decentralized finance ecosystem suggest that the proposal could be a turning point in the UK crypto tax reform discussion.
Sian Morton, marketing lead at the cross-chain payments system Relay Protocol, said the “no gain, no loss” framework is a “meaningful step forward for UK DeFi users who borrow stablecoins against their crypto collateral, and moves tax treatment closer to the actual economic reality of these interactions.” Morton added that the shift is “a positive signal for the UK’s evolving stance on crypto regulation.”
Maria Riivari, a lawyer at Aave, echoed the sentiment, emphasizing how the proposal clarifies when taxable events occur. She noted that the change “would bring clarity that DeFi transactions do not trigger tax until you truly sell your tokens.”
Riivari also suggested that HMRC’s effort could influence other jurisdictions grappling with similar digital-asset tax questions. “Other countries facing similar questions may want to take note of HMRC’s approach and the depth of research and consideration behind it,” she said.
Aave CEO Stani Kulechov described the HMRC proposal as “a major win for UK DeFi users who want to borrow stablecoins against their crypto collateral.”
His remarks underline the broader industry expectation that UK crypto tax reform should align tax rules with the structure of blockchain-based borrowing and lending markets.
Despite the positive reception, the proposal is not yet law. HMRC said it will continue to consult with stakeholders as part of the broader UK crypto tax reform agenda.
Officials noted that ongoing engagement is necessary “to assess the merits of this potential approach, and the case for making legislative change to the rules governing the taxation of crypto asset loans and liquidity pools.”
The agency added that any final framework must be practical for individuals and broad enough to cover the wide variety of DeFi transactions. As UK crypto tax reform continues to evolve, ensuring compliance simplicity remains a top priority for policymakers seeking to balance innovation with oversight.
The initial consultation drew 32 formal responses from individuals, tax professionals, businesses, and industry bodies, including Binance, a16z Capital Management, and CryptoUK. Their submissions reflect the wide-ranging interest in UK crypto tax reform and the importance of establishing rules that support innovation without compromising tax integrity.
If implemented, the proposed “no gain, no loss” system could influence how other countries treat DeFi transactions. As debates over UK crypto tax reform intensify, international observers are watching closely.
Many regulators are struggling to classify crypto lending, liquidity pooling, and similar activities within traditional tax frameworks. The UK’s attempt to simplify and rationalize its approach could offer a roadmap for others.
For now, the proposal stands as one of the most substantive developments in UK crypto tax reform in recent years. Industry experts say a more predictable tax environment could encourage greater domestic participation in DeFi markets and strengthen the UK’s positioning as a competitive global hub for digital finance innovation.
