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Posted Wed, 13 Oct 2021 22:19:15 GMT by JB H
Is there any information yet about how HMRC intend to tax rewards from lending cryptoassets to DeFi liquidity pools? Will it simply be treated as income - the same as the current treatment of rewards from staking cryptoassets ? When cryptoassets are withdrawn from liquidity pools it is extremely unlikely that the number of each asset returned will be the same as the number originally lent. Will this difference be treated as a sale or purchase of the asset, and give rise to a CGT liability ? What records need to be kept ? The rapid increase in these types of instruments and the volume of transactions within them mean that guidance is needed very quickly if individuals are to correctly record their activities to enable them to complete their 2021 self assessment forms.
Posted Fri, 15 Oct 2021 13:51:42 GMT by HMRC Admin 19

We are expecting HMRC to publish further guidance regarding DeFi and lending by December this year.

In the mean time you should keep records that would enable you to calculate either the Capital Gains on the transaction or calculate Income Tax. 

Thank you.

Posted Thu, 09 Dec 2021 12:28:37 GMT by l0wry
HMRC - Please, please, we need you to start accepting crypto payments. It is untoward to expect people to keep records of the £ value when a lot of these protocols are rewarding token holders in real-time. This is further reinforced by the volatility of some cryptocurrencies and more generally the whole Defi space. It would honestly be a full-time job.
Posted Thu, 30 Dec 2021 14:01:03 GMT by HMRC Admin 2

As this is a fast moving field, certain areas of cryptocurrency are under review and will be published as soon as decisions are made.

In the meantime, you can find all current HMRC guidance on cryptocurrency here:

Cryptoassets Manual

Thank you.
Posted Tue, 25 Jan 2022 05:54:39 GMT by G R
The post above from HMRC states "we are expecting HMRC to publish further guidance regarding DeFi and lending by December this year." It is now nearly the end of January the following year. When can we expect this updated guidance?
Posted Tue, 25 Jan 2022 10:45:16 GMT by HMRC Admin 17

Guidance will be updated as soon as discussions are finalised. 

Thank you.

Posted Tue, 29 Mar 2022 09:34:15 GMT by JB H
I have read the latest guidance on the tax treatment of lending to liquidity pools. If I have understood it correctly, then as far as the daily reward payments are concerned, they should be treated as miscellaneous income since I am an individual investor, not a trader. The pool I lend to effectively takes control of the 2 assets I lend (unlike staking), so I believe that the entry to the pool is considered a CGT disposal. Because the assets enter the pool at their current value, I believe I crystallise a gain or loss on that date, depending on whether my acquisition cost of the assets lent was higher or lower than the current cost. The pool token I receive in exchange for the 2 lent is valued at the sum of the current value of the 2 assets lent. On exit from the pool, I believe I receive back the 2 assets lent at their current value. This triggers a CGT gain or loss for the pool token redeemed, depending on whether the pooled value of the pool token is less than, or more than the value of the 2 returned original assets. If I have understood the rules correctly, it appears that they are designed to force a CGT gain or loss to be triggered both on entry to, and exit from an LP pool. The result of which is to bring forward the date of any CGT liability on assets lent to, and returned from LP pools to the date of entry or exit, rather than the date they are finally disposed of for GBP. Clearly any CGT gain on the final disposal for GBP will be considerably less than if they had not been lent to an LP pool at all, I'll just have had to pay part of the CGT tax due earlier than if I hadn't lent them. Moderator - please can you confirm that my understanding is correct, and please don't just point me at the latest published guidance (I've been there). If you decide not to allow this post to be published, please can you tell me why, and what I need to alter to make it publishable.
Posted Wed, 30 Mar 2022 10:00:07 GMT by HMRC Admin 17

This is under discussion at the moment.

Further guidance will be posted within the crypotassets manual once discussions are closed.

Please see guidance to the cryptoassets manual here :

Cryptoassets Manual  ”. 

Thank you.

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