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British tax authorities have rewritten the rules for DeFi, addressing a long-standing pain point the industry has been pushing to fix for three years. HMRC published a policy paper on July 13 2027 introducing no gain, no loss treatment for qualifying cryptoasset lending arrangements and liquidity pool transactions.
HMRC’s framework covers three specific use-cases.
In single-asset lending arrangements, a user who deposits crypto and later receives back the same type and quantity of asset will see both legs of that transaction treated on a no gain, no loss basis. CGT doesn’t arise at the point of deposit or at the point of withdrawal. Therefore, the tax event is deferred until a genuine economic disposal occurs.
The UK will adopt a "no gain, no loss" tax treatment for eligible crypto lending and DeFi liquidity pool transactions from April 2027
Is this a big win for UK adoption? pic.twitter.com/l87YGzhay9
— James Richmond | Crypto Trader & Market Analyst (@_jrcryptex) July 14, 2026
For borrowing arrangements, assets posted as collateral are disregarded for capital gains tax purposes. The borrowed crypto itself is treated as purchased at its market value at the time of borrowing, but collateral does not trigger a taxable event just by being pledged.
The same treatment applies on entry to automated market maker liquidity pools. On exit, the treatment holds as long as the user receives back the same quantity originally deposited. If the amount received is different from the original deposit, a capital gain or loss is recognized only on that difference. While the principal is protected from taxation, the variance is not.
Importantly, yields and rewards earned from lending or liquidity provision remain fully taxable as miscellaneous income in the year they are received. HMRC has not extended no gain, no loss treatment to the profit side of DeFi activity, only to the structural movements that add to administrative burden without yielding genuine economic outcomes.
It started with HMRC running a call for evidence in mid-2022 after its original guidance produced what stakeholders described as disproportionate administrative burdens. After that, formal public consultation ran from April to June 2023 while budget 2025 set out the policy direction. The July 13 2026 announcement is thus the long awaited legislative confirmation that the framework has been finalized.
HMRC in the UK is adopting new tax legislation related to crypto lending and liquidity pools.
Main take is that deposits into lending protocols will be treated as ‘no gain, no loss’ (NGNL), which effectively defers capital gains tax until an economic disposal. Also underlying…
— Stani (@StaniKulechov) July 13, 2026
Aave’s founder and CEO Stani Kulechov’s response to the announcement stressed the importance of the industry’s engagement with the consultation process and got a different outcome. He drew a direct parallel to the FCA’s decision earlier this year to scrap the proposed £20,000 cap on individual stablecoin holdings following industry pushback, as yet another case where evidence-based lobbying produced a meaningful policy concession.
The UK entered 2026 with a reputation as one of the difficult jurisdictions for crypto and DeFi operators. Three major regulatory developments in eight weeks suggest that has changed, with the UK now going from a regulator trying to control an activity it did not fully understand to one actively trying to align rules with economic reality.
The UK's FCA just finalized its full crypto rulebook.
Every exchange, custodian, and stablecoin issuer needs full authorization to operate.
Stablecoin capital floor cut from 2% to 1% after industry pushback.
Applications close February 28, 2027. Regime goes live October 25.… pic.twitter.com/iTSOeSFslS
— Kyle Chassé 🐸 (@Kylechasse) June 30, 2026
The recently published FCA’s Mills Review on agentic AI followed the same direction of travel at the frontier of crypto-adjacent technology. The policy is due to take effect April 6, 2027, and applies to individuals and trustees.
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