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Posted Sun, 31 Dec 2023 00:45:06 GMT by
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?
Posted Tue, 09 Jan 2024 14:41:11 GMT by HMRC Admin 19

You can see guidance here:

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

Thank you.
Posted Thu, 15 Feb 2024 16:16:48 GMT by
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?
Posted Tue, 20 Feb 2024 11:12:20 GMT by HMRC Admin 5
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.


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