crypto token lending with nft as collateral - capital or income tax?

Hi, I was reading hrmc guidance on DEFI, but it is still not super clear for me. I as a lender lend ETHEREUM token with fixed interest rate and borrower puts NFT as a collateral. If borrower repays the loan I will receive more ETH tokens than I lent, but if the loan defaults I will get the NFT. Will this always be treated as capital gains as in whichever outcome neither ETH nor NFT are a currency?

Hi,

You can see guidance here:

CRYPTO61214 - Decentralised Finance: Lending and staking: Income tax: Making a DeFi loan: Nature of the return

Thank you.

That is the guidance that i have read - it still doesnt make it super clear how it should be treated. Looking at the previous example that i posted: 1. "return is realised through the disposal of a capital asset" (neither NFT nor ETH are currency) - indicates capital gains 2. "return to be received is unknown and speculative (and could result in a loss from the activity)" - indicates capital gains 3. "one-off payment is more likely to have the nature of capital" - indicates capital gains 4. "something which is in the nature of interest" - indicates income so nearly everything points towards capital gains - should I just treat it as such?

Hi D8Jgcdk

We can only advise you of the guidance.  It is up to you to review the guidance and make an informed decision.  
If you are unable to reach a decision, you may need to consider seeking professional advice for the answer you seek.

Thanks