The UK government has proposed a new tax framework for decentralized finance (DeFi) transactions that aims to reduce administrative burdens and align taxation with economic reality. Under the proposal, users who lend, borrow, or provide liquidity through decentralized platforms would defer capital gains tax (CGT) until they sell the underlying tokens.
The HM Revenue and Customs (HMRC) announced that it is assessing a “no gain, no loss” (NGNL) approach. The framework would apply to cryptoasset loans and liquidity pools, which have become core components of the digital asset economy. The proposal follows an extensive consultation process first launched in mid-2022.
The proposal forms part of HM Revenue and Customs’ (HMRC) continuing policy development on the taxation of DeFi lending and staking, outlined in its official document, “The taxation of decentralised finance (DeFi) involving the lending and staking of cryptoassets — Summary of responses,” published on GOV.UK and last updated 26 November.
HMRC explained that, under the new approach, taxable gains or losses would occur only when liquidity tokens are redeemed or when a user disposes of the cryptoassets for economic value. Under current tax law, every transfer of tokens in or out of a protocol can trigger a CGT event, which creates complex reporting requirements and potential double taxation.
Proposal follows two-year consultation on DeFi tax reform
The latest draft builds on earlier government consultations about the treatment of cryptoasset lending and liquidity pools. HMRC’s first Call for Evidence opened in July 2022 and received near‑unanimous support for a revision of how DeFi interactions are taxed.
From April to June 2023, the government conducted a second consultation to gather technical feedback on proposed rules. A total of 32 formal written submissions came from individuals, tax specialists, businesses, and major industry groups, including Binance, a16z Capital Management, and Crypto UK. Additional roundtables and multilateral discussions were also held to analyze the impact of potential legislative change.
Respondents supported reforms that could simplify reporting and provide fairness across centralized and decentralized models. Participants agreed that the NGNL method better reflects how DeFi works, as tokens are effectively swapped in and out of protocols for equivalent value rather than disposed of permanently.
Many contributors also asked the government to ensure flexibility so that the framework can remain effective as new crypto market models emerge, including automated market makers, yield aggregators, and multi‑chain tokenization processes.
What the “no gain, no loss” model means
The NGNL model would treat specific cryptoasset transactions as temporary transfers rather than disposals. A disposal would be recognized for tax only at the point where a person permanently exchanges or sells the tokens for economic gain.
For example, when a user deposits tokens into a liquidity pool, that action would not trigger CGT. Instead, the taxable event would occur when the user withdraws liquidity or sells tokens in return for another cryptoasset or fiat currency. Based on the design notes, capital gains or losses would be calculated according to the number of tokens returned compared with those contributed.
HMRC said it continues to assess the practicality of this approach. The department stated it must ensure the system covers “the range of transactions that can take place under these arrangements and would be viable for individuals to comply with.”
Industry response highlights clarity and innovation benefits
Industry participants welcomed the HMRC proposal as a sign of policy maturity. Sian Morton, marketing lead at Relay protocol, said that the no‑gain, no‑loss model is a “meaningful step forward for UK DeFi users who borrow stablecoins against their crypto collateral, and moves tax treatment closer to the actual economic reality of these interactions.” She added that it represents “a positive signal for the UK’s evolving stance on crypto regulation.”
Maria Riivari, a lawyer at Aave, said the proposed framework “would bring clarity that DeFi transactions do not trigger tax until you truly sell your tokens.” She added that “other countries facing similar questions may want to take note of HMRC’s approach and the depth of research and consideration behind it.”
This is a notable positive development for DeFi in the UK. The HMRC is considering new rules: the goal is to make tax simpler and closer to the real economic outcomes of DeFi lending.
— Maria Riivari (@MariaRiivari) November 27, 2025
This would bring clarity that DeFi transactions do not trigger tax until you truly sell your… https://t.co/QExIIREho6
Aave CEO Stani Kulechov described the move as “a major win for UK DeFi users who want to borrow stablecoins against their crypto collateral.”
HMRC has published its consultation outcome in the UK regarding the taxation of DeFi activities related to lending and staking.
— Stani.eth (@StaniKulechov) November 27, 2025
A particularly interesting conclusion is that when users deposit assets into Aave, the deposit itself is not treated as a disposal for capital gains…
Government continues to evaluate legislative pathway
HMRC emphasized that the proposal is still under review and that no legislative changes have been enacted. Officials are maintaining dialogue with industry advisers to finalize design details and assess its long‑term implications.
In its statement, the government said it remains committed to ensuring fairness and avoiding distortion between cryptoassets and other asset classes. It also reiterated that any reform must not open new tax avoidance opportunities and must work across both centralized finance (CeFi) and decentralized finance (DeFi) models.
The UK Treasury and HMRC will continue informal engagement with stakeholders as they refine the NGNL model. If adopted, the rule would mark one of the first national efforts to tailor taxation specifically for decentralized finance.
Oleksii Shumak
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