With the rising adoption of decentralised finance (DeFi) lending and staking services, the United Kingdom (UK) tax authority is currently exploring the likelihood of implementing taxation on these activities. There are an estimated 300,000 users in the UK utilising DeFi and staking products.
According to a proposal published on Thursday by Her Majesty’s Revenue and Customs (HMRC), the taxation treatment also affects cryptocurrency lending and staking services offered on centralised platforms.
Emphasizing the importance of public consultation on DeFi lending and staking, the HMRC added:
“The government aims to establish clear tax and regulatory treatment of cryptoassets to place the UK at the forefront of safe, sustainable, and rapid innovation in cryptoasset and blockchain technologies.”
At present, the HMRC's manual defines that DeFi gains are taxed as miscellaneous income or capital gain. However, the current proposal seeks to define all DeFi returns “as being revenue in nature,” and will be open to “new miscellaneous income charge.”
Although the latest tax policy approach is considered in terms of neutrality, fairness, and practicality, the agency stated that the policy is not meant to “take the place of the wider regulatory framework” for cryptocurrencies.
The tax authority mentioned in the proposal that investors, professionals, and companies engaged with DeFi and other crypto activities can participate in the public consultation initiated by the agency through a provided email address. Legal accountancy, tax advisory, and academic institutions can also partake in the consultation.
The public consultation, slated for eight weeks, will be open from 27 April 2023 to 22 June 2023. Notably, this is not the first time the agency will bring up discussions about DeFi taxation. Last July, the HMRC sought the view of investors and companies over the possibilities of taxing the lending and staking services within the sector. The matter was presented through a call for evidence that closed on 31 August 2022.
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