DeFiApr 28, 2023

The UK Treasury plans to tax staking and DeFi lending

Treasury tax officials in the UK are looking to introduce a new tax regime for the decentralized finance industry.

The UK Treasury is looking at how decentralized finance (DeFi) could be taxed. Specifically, it is about digital currency staking and cryptocurrency lending in the DeFi sector. In order to properly assess the potential opportunities, UK tax authorities have asked investors, cryptocurrency market experts and crypto asset companies to submit their proposals.

The UK Treasury plans to tax DeFi

DeFi transactions, and thus primarily granting loans on decentralized financial protocols, may soon be taxed in a new way by the UK tax authorities. Currently, the State Treasury's arm is looking for information on how this can be done as quickly as possible so that the regulations are better adapted to this innovative and dynamically developing industry.

According to the officially released information, the consultations launched on April 27 this year will last until June 22. According to explanations provided by UK officials, the aim of the new regulations is "to create a more perfect system that better aligns the taxation of digital currencies used in lending and DeFi staking transactions." The new regulations also aim to incorporate digital assets into the core economic substance, while reducing unnecessary administrative burdens for users of the cryptocurrency sector.

The changes proposed by British officials assume that the use of cryptocurrency assets in DeFi transactions would no longer be treated as giving rise to a sale for tax purposes. In lieu of the current rules, officials propose a solution where taxable disposals would only occur if the crypto-assets were economically sold in a non-DeFi transaction.

Although the recently presented document focuses on lending and staking in the DeFi sector, the proposed tax framework presented for consultation with industry experts would also apply to lending and staking of crypto assets on classically understood centralized platforms.

The British authority asked both investors who operate in the digital currency industry and specialists, as well as companies involved in the DeFi sector, to comment on this matter. In the latter case, it is primarily about technology companies and those dealing with financial services.