The UK Government has launched a cryptoasset tax consultation to modify the tax treatment of cryptoassets used in decentralised finance (DeFi) lending and staking transactions.
The law currently treats many of these transactions as disposals for tax purposes. This usually triggers a capital gains tax (CGT) charge, despite the owner still having an economic interest in the asset.
According to industry representatives and tax professionals, these rules cause difficulty and do not reflect the “underlying economic substance” of DeFi transactions.
Instead, the Government plans to introduce separate rules for DeFi lending and staking. Under the proposed changes, CGT will only apply once the asset is fully disposed of.
The Government hopes this measure will reduce costs and simplify the administrative burden for taxpayers involved in DeFi transactions. The approach also allows policymakers to make further legislative changes as the DeFi market evolves.
Tim Humphries one of RPGCC’s Tax Partners commented “The UK Government needs a high impact campaign to communicate with the owners of crypto, not only in respect of how they report but their ongoing tax obligations but also how they pay the tax on their gains.”
The Government consultation will run from 27 April 2023 to 22 June 2023.
If you would like to talk to us about cryptoassets, or indeed any area of tax, please contact us on 020 3697 7147 for a free, no obligation consultation.
