The UK tax authority, His Majesty’s Revenue and Customs (HMRC), has officially introduced the “no gains, no loss” (NGNL) rule to reform taxation in decentralized finance (DeFi) protocols.
Dubbed the “Tax treatment of cryptoasset loans and liquidity pools,” the legislation overhauls the highly criticized 2022 “dry tax” model, which triggered tax liabilities with every token transfer.
No crypto capital gains tax until you sell
Starting April 6, 2027, the new model will defer Capital Gains Tax (CGT) for about 700,000 DeFi users. Here is a breakdown of the core aspects of the framework:
First, the NGNL rules will apply to crypto assets deposited into interest-bearing protocols, liquidity pools, or as collateral.
Secondly, HMRC will classify shifting tokens using smart contracts as a “tax-neutral” event. A truly taxable event will occur only when there is “economic disposal.” This essentially refers to selling crypto assets on an exchange, swapping them for other assets, or withdrawing more assets than one initially deposited into a liquidity pool.
Third, the revenue agency will consider any staking yields, mining returns, airdrops, interest, rewards, and even job payments as miscellaneous income. This will make them subject to Income Tax of up to 45% in the year they are received.
Finally, the legislation will incorporate strict crypto transaction tracking to eliminate any tax disputes. In November 2023, the UK committed to integrating the Organization for Economic Co-operation and Development (OECD) framework known as CARF (Crypto-Asset Reporting Framework). Starting in 2027, HMRC will expect transaction history data from crypto platforms to verify which assets qualify for NGNL deferral.
The outlook
Compared to the previous model, the new guidelines are much leaner, reducing massive paperwork for both DeFi users and the tax authority. They are also aligned with the Financial Conduct Authority (FCA) multi-year goal of positioning the UK as a competitive global crypto hub.
Was this writing helpful?
Story Ends Here
Trust with CoinPedia:
CoinPedia has been delivering accurate and timely cryptocurrency and blockchain updates since 2017. All content is created by our expert panel of analysts and journalists, following strict Editorial Guidelines based on E-E-A-T (Experience, Expertise, Authoritativeness, Trustworthiness). Every article is fact-checked against reputable sources to ensure accuracy, transparency, and reliability. Our review policy guarantees unbiased evaluations when recommending exchanges, platforms, or tools. We strive to provide timely updates about everything crypto & blockchain, right from startups to industry majors.
Investment Disclaimer:
All opinions and insights shared represent the author’s own views on current market conditions. Please do your own research before making investment decisions. Neither the writer nor the publication assumes responsibility for your financial choices.
Sponsored and Advertisements:
Sponsored content and affiliate links may appear on our site. Advertisements are marked clearly, and our editorial content remains entirely independent from our ad partners.
Read the Next News
