TLDR
The UK has proposed a no gain, no loss approach for DeFi, so deposits into lending pools or AMMs would not be taxed at deposit and capital gains would be recognized only on real disposal events, subject to legislation finalization industry report.
- Deposits to DeFi protocols would stop being taxable disposals, with gains calculated when you exit or sell instead policy summary.
- Borrowing against crypto would not trigger CGT until the borrowed assets are actually sold and then repurchased to repay, and AMM exits are taxed on the difference returned vs contributed explainer.
- From 2026, UK platforms must collect and report user crypto transaction data under an expanded CARF regime, tightening compliance regulatory update.
Deep Dive
1. NGNL Defers Tax To Real Disposal
HMRC is backing a no gain, no loss model in which moving tokens into DeFi lending or liquidity pools would no longer count as a taxable disposal, addressing dry tax outcomes that hit users before any profit is realized. The change would defer capital gains recognition until a sale, swap, or withdrawal that crystallizes an economic gain or loss, pending legislative steps and final guidance industry report.
Record keeping gets simpler and tax aligns better with actual outcomes, but the liability is not gone, only shifted to when you realize gains.
2. Borrowing And AMM Treatment
Under draft guidance, locking collateral to borrow would not create CGT by itself. Tax arises only if borrowed assets are sold and later repurchased for repayment, with gains calculated over that buy-sell cycle. For AMMs, deposits would be NGNL, while exits would be taxed based on how many tokens you receive back versus what you put in, reflecting real changes in position value explainer. Industry participants have welcomed the shift as more practical for DeFi operations summary.
Strategy design around redemptions and rebalancing matters more than the initial deposit. You still need clean records for exit events and borrowed-asset sales.
3. Reporting Tightens In 2026
Separately, the UK is expanding the Cryptoasset Reporting Framework so domestic platforms must collect full transaction histories from 1 Jan 2026 and share them with HMRC the following year, giving authorities automatic visibility into UK user activity regulatory update. This sits alongside the proposed DeFi tax shift and signals a broader push to improve compliance.
Expect fewer reporting gaps. Reconciling self-assessments with exchange-reported data will be essential.
Additional notes and risks: a) The NGNL approach is a proposal tied to the recent budget cycle and consultation outcome, not yet enshrined in law. HMRC is still refining scope and mechanics before legislation industry report. b) Income streams like staking rewards, airdrops, or mining remain taxed as income where applicable. The NGNL model focuses on capital disposals in DeFi flows policy summary.
Conclusion
The UKs proposed NGNL framework would eliminate tax on DeFi deposits and shift capital gains recognition to genuine exit or sale events, while 2026 reporting rules close data gaps. If enacted, this should reduce dry tax outcomes and admin burdens, but it raises the bar on documenting exits and aligning filings with platform-reported data.
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