MV Capital - UK HMRC Adopts No Gain No Loss Tax Treatment for Crypto Lending and Liquidity Pools

HM Revenue & Customs will defer capital gains tax on certain crypto lending and liquidity pool transactions starting April 2027, treating qualifying moves as no gain, no loss until economic disposal

Policy Details and Scope

The UK tax authority announced changes that treat specific disposals in cryptoasset loans and liquidity pools on a no gain, no loss basis. This defers capital gains tax until participants make an actual economic disposal of the underlying assets. The measure applies to individuals and trustees and takes effect on 6 April 2027.

HMRC estimates the update will affect around 700,000 people who participate in these arrangements. It follows consultations that began with a call for evidence in 2022 and continued through 2023, addressing concerns about administrative burdens from earlier guidance.

Key Scenarios CoveredAcquisition or disposal of an interest in a single cryptoasset lending arrangement in exchange for the same type of cryptoasset.
Borrowing arrangements where borrowed assets are acquired at market value, with collateral disregarded for capital gains tax.
Automated market-making arrangements in liquidity pools, where deposits and withdrawals of the same quantity receive no gain, no loss treatment.

In cases where the amount received differs from the original investment, gains or losses are calculated based on that difference. This approach aligns tax rules with the economic reality of the transactions rather than treating every transfer as a disposal.

Background and Previous Guidance

Under the existing UK tax framework, cryptoassets are viewed as investments. Selling, swapping, or spending them counts as a disposal subject to capital gains tax at rates of 18% for basic-rate taxpayers and 24% for higher-rate taxpayers. The 2022 guidance had created challenges for users of lending protocols and liquidity pools by triggering tax events on deposits and withdrawals that did not reflect real economic changes.

Stakeholders raised issues during consultations about the disproportionate record-keeping and compliance requirements. The new rules amend the Taxation of Chargeable Gains Act 1992 to provide clearer treatment for these DeFi activities.

 “This measure will support fairness in the tax system. It aligns the tax treatment more closely with the economics of these arrangements by ensuring that gains and losses are generally recognized only when the participant makes an economic disposal of the cryptoassets.”HM Revenue & Customs

Industry Reactions

Leaders in the crypto sector have noted the positive direction of the policy. Aave founder and CEO Stani Kulechov commented on the change, pointing to industry input as a factor in shaping the outcome.

 “HMRC is adopting new tax legislation related to crypto lending and liquidity pools. This is the right direction, mainly driven by the industry feedback demonstrating that any other approach would cause significant admin burden for the taxpayer.”Stani Kulechov, Aave Founder and CEO

The update comes alongside other developments in UK digital asset policy, including separate proposals on stablecoins that would treat certain returns as savings income.

Implementation and Next Steps

HMRC indicated that final costings will undergo review by the Office for Budget Responsibility and appear at a future fiscal event. The authority does not anticipate significant macroeconomic effects from the measure.

Draft legislation will provide further details on qualifying arrangements ahead of the 2027 start date. Users will still need to track transactions for eventual disposals, where standard capital gains tax rules apply.

Aspect	Details
Effective Date	6 April 2027
Affected Parties	Individuals and trustees (est. 700,000)
Legal Basis	Amendments to Taxation of Chargeable Gains Act 1992
Tax Trigger	Economic disposal of cryptoassets

This policy adjustment represents an effort to reduce compliance complexity while maintaining the overall tax obligations on realized gains from crypto activities.