• UK HMRC advances DeFi tax rules using a ‘no gain, no loss’ (NGNL) approach to simplify reporting.
• Proposed rules cover crypto loans, staking, and automated market makers, aiming to reduce administrative burden.
• Stakeholders emphasize inclusion of multi-token liquidity pools and clear guidance for evolving DeFi models.

HMRC has taken a significant step in shaping the taxation of cryptoasset loans and liquidity pool arrangements in the UK.

The consultation outcome, highlighted by Stani.eth, founder and CEO of Aave, clarifies that depositing assets into DeFi platforms like Aave will not trigger capital gains tax, thanks to a ‘no gain, no loss’ (NGNL) approach.

This means users can lend or stake their crypto without immediate tax liability, only paying capital gains tax when assets are economically disposed of.

The move follows a two-stage consultation process. Initially, from July to August 2022, HMRC collected feedback on potential reforms, including three options: treating crypto loans under existing repo rules, creating separate rules for cryptoasset loans, or adopting NGNL principles.

The majority favored Options 2 and 3, with NGNL emerging as the most practical approach for reducing administrative burdens.

A second consultation in 2023 sought views on how these rules could work in practice, covering both centralized and decentralized finance transactions.

Also Read: UAE Introduces Federal Decree Law No. 6: DeFi and Crypto Regulation Explained

Coverage of Single and Multi-Token Arrangements

Under these new rules, single-token arrangements, where individuals lend or stake only one type of crypto, will apply under the NGNL treatment. This means that any gain or loss can be determined at the point of sale, but not when the crypto is loaned or staked.

Using the example where an individual loans 100,000 USDC, using Bitcoin as collateral, and then sells the USDC at £80,000, but buys it back at a future date when repaying the loan, a capital gain of £5,000 will arise when they buy back the instrument to repay the loan.

Multi-token arrangements, such as automated market makers (AMMs), are considered in these arrangements. These services require you to stake different tokens in order to increase the pool of funds.

HMRC will tax contributions and withdrawal transactions on an NGNL basis, whereby the gain or loss will only occur when the number of tokens you withdraw changes from the number you started with.

In the case where you stake 3ETH and 12,000 USDC in the liquidity pool and make a withdrawal, there can be a gain of £1,200.

Stakeholders Push for Clearer DeFi Guidelines

They emphasized the need for clear and dynamic rules because DeFi is itself constantly evolving. They cited issues such as wrapped tokens, crossing chains, collateral, yield farming, and tokens representing real-world assets.

The HMRC agreed that having clear definitions and rules helps to ensure that people do not accidentally breach the rules.

The government is collaborating with technology companies to ensure that regulations are feasible. It anticipates that all users of DeFi will already have tools to manage their portfolios.

Although there are concerns about additional red tape, the overall reception of the NGNL method has been positive since it corresponds to how financial transactions in crypto occur. 

It encourages voluntary compliance with regulations and allows the UK crypto market to develop.

Also Read: VeChain Posts Mixed Q3 2025 Results As DeFi TVL Jumps Over 800%