HMRC releases new DeFi guidance - Lending & Staking - PKF Francis Clark
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HMRC releases new DeFi guidance – Lending & Staking

This afternoon HMRC released an update to its cryptoasset manual, which was first published on 30 March 2021. This marks HMRC’s first official guidance concerning an area within decentralised finance (DeFi), an umbrella term describing activities similar to traditional financial services through Distributed Ledger Technology (DLT). To date the only other tax administration to publish specific guidance on DeFi loans has been Norway.

‘CRYPTO60000 – Decentralised Finance’ starts with today’s addition of ‘CRYPTO-61000 – Lending and staking’; primarily focused on the lending and borrowing of cryptoassets.

Key points to consider

The guidance acknowledges the following scenarios:

  • Lender to borrower (no platform involved)
  • Provision of liquidity to a platform (no tokens received)
  • Provision of liquidity to a platform (tokens received at a fixed ratio for each token loaned)
  • Provision of liquidity to a platform (tokens received represent share in liquidity pool)
  • Provision of liquidity to a platform (NFT received recording terms of loan)

In DeFi transactions, it is important to consider beneficial ownership of tokens, and whether on a loan to an individual or platform, this has been compromised. If the borrower or platform has the ability to deal with these tokens as they want, then this will be a strong indicator that beneficial ownership has transferred, which could be a disposal for capital gains tax on the part of the lender, and an acquisition for the borrower/platform.


Where tokens are provided as collateral, there needs to be consideration as to what the platform can do with those tokens whilst in its custody. If the platform has use of the tokens and deals with them as it wishes, it is a strong indication that beneficial ownership of the tokens has passed, giving rise to a disposal of assets.

Terms and conditions

The guidance highlights the issue around the fact there is no standardised operating model for DeFi lending platforms, making it necessary to consider the terms and conditions offered by the platform on which the tax treatment will follow. If you are unaware of the terms and conditions on your platform of choice, it is recommended you check them as there may be unwanted tax complications. Celsius, for example, is a platform that allows loans by way of collateralising tokens, which conventionally would not give rise to a capital gains tax charge. The terms and conditions describe the activity as a ‘sale and repurchase’ of tokens which may not necessarily reflect the economic substance of the transactions.


The guidance further confirms that returns made through these activities cannot be interest, as interest is the return or compensation paid or received for the use or retention by one person of a sum of money belonging or owed to another. As cryptoassets are not considered currency or money by HMRC, the rate of return on cryptoasset loans is not considered to be interest.

Worked Examples

HMRC has included a number of worked examples within CRYPTO61670, to help tax payers understand the complicated nature of capital disposals and receipts when tokens are loaned, these loans are satisfied, and when borrower’s collateral is liquidated.

Link to the guidance

HMRC Cryptoasset Manual – CRYPTO60000 – Decentralised Finance

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Ben is a business services and taxation partner in the Taunton office, supporting individuals and businesses to achieve their financial ambitions. He relocated to the South… read more
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