Staking, DeFi lending and liquidity pool tax in the UK

Proof-of-stake rewards, DeFi returns and transfers into pools require different UK tax questions. This guide explains the current HMRC approach and the July 2026 draft for specified no-gain/no-loss transactions, intended from 6 April 2027 but requiring final legislation.

The UK tax framework applying in 2026

There are two separate questions. First, is a staking or lending return income or capital? Second, does entering or leaving the arrangement dispose of a cryptoasset for Capital Gains Tax? HMRC's Cryptoassets Manual requires the actual contract and economic rights to be examined; a protocol's “stake”, “earn” or “deposit” label does not answer either question.

For the 2025/26 and 2026/27 tax years, individual Capital Gains Tax rates for ordinary assets are 18% and 24%, depending on the taxpayer's income band, and the individual annual exempt amount is £3,000. Use the rates for the actual tax year. Income Tax follows the taxpayer's relevant marginal rate and circumstances; there is no 10% general staking band.

Proof-of-stake rewards: trade or miscellaneous income

HMRC's dedicated staking page says the degree of activity, organisation, risk and commerciality determine whether proof-of-stake activity amounts to a taxable trade. If it is a trade, awarded tokens are trade receipts. If it is not a trade, the sterling value of tokens awarded at the time of receipt is taxable miscellaneous income, with appropriate expenses potentially reducing the charge.

If the individual retains the award, a later disposal can create a capital gain or loss. The sterling amount recognised as income provides the acquisition value for the awarded units, preventing the receipt value from being taxed twice. A report must retain the exact time the taxpayer becomes entitled to and can control the award, not merely a protocol's estimated counter.

The public HMRC guidance says the £1,000 trading and miscellaneous income allowance may cover qualifying income across all such sources. It also gives notification routes depending on total miscellaneous income. The allowance is not a crypto exemption and cannot be duplicated for every wallet or protocol.

• separate staked principal from awarded tokens;
• record gross units and validator or platform fees;
• value awards in sterling at receipt;
• avoid duplicating auto-compounded rewards;
• carry income value into the CGT acquisition pool.

A DeFi return can be income or capital

HMRC expressly states that it cannot prescribe one result for all lending and staking models. A return is more likely to be revenue when it is agreed in advance, paid periodically or remunerates the service of lending tokens. A speculative return realised through disposing of a capital asset may instead be capital. No single factor is conclusive.

That means “all yield farming is miscellaneous income” is too broad. A 5% contractual return paid by a borrower looks revenue-like; uncertain appreciation of a receipt token realised only on sale can look capital. The term, certainty, payer and route by which value is realised must be stored as report facts.

Borrow, repay, collateral and liquidation transactions are separate from the return. Borrowed tokens do not automatically constitute income, but their later use and replacement can have CGT consequences. Fees should be linked once to the transaction they economically serve.

Why beneficial ownership matters under current guidance

Under HMRC's current published approach, entering a DeFi loan or staking arrangement triggers a disposal if beneficial ownership of the tokens moves to the borrower or platform. A strong indicator is that the recipient can deal with the tokens as it wishes. Restrictions preventing sale, exchange or relending point in the other direction.

Where ownership transfers for a right to receive tokens later, that right forms the consideration and can itself be an asset. If the platform issues a liquidity token, exchanging the original token for it is a disposal at sterling market value. This can create a CGT charge before any cash has been withdrawn, which is the administrative problem targeted by the 2027 reform.

CGT calculations for fungible exchange tokens use the section 104 pool, after same-day and 30-day matching. A DeFi report must therefore integrate the arrangement with all other acquisitions and disposals of the same token. The UK same-day and 30-day guide explains the order.

Liquidity pools and impermanent loss

For an automated market maker, supplying two tokens and receiving an LP token or NFT position can transfer beneficial ownership and create disposals under current law. The market value of the position received must be apportioned across the assets given up on a just and reasonable basis. Removing liquidity then disposes of the position for the value of tokens received.

Trading fees may be distributed as new tokens or accumulate inside the position. Distributed payments may be revenue; growth realised through disposal may be capital. Incentive tokens require their own receipt analysis. Impermanent loss is not a standalone allowable loss: the tax result comes from recognised disposals, allowable cost and proceeds.

1. identify ownership before and after deposit;
2. value every token transferred in sterling;
3. identify LP token, NFT or contractual right;
4. separate distributed rewards from position growth;
5. reconcile all assets returned on withdrawal;
6. apply section 104, same-day and 30-day matching.

Pool example: entry gain and exit loss do not cancel income

Assume a private investor transfers beneficial ownership of their entire 4 ETH holding, matched allowable cost £6,000 and current value £8,000, together with stablecoins worth £2,000 and costing £2,000. They receive one LP position worth£10,000. No fees or competing same-day/30-day acquisitions apply. The ETH disposal produces£2,000 gain; the stablecoin leg produces nil gain.

Later the entire LP position is surrendered for 2 ETH worth £5,000 and stablecoins worth £2,500. Supported exit consideration is£7,500, giving£2,500 capital loss against its £10,000 acquisition amount, subject to the confirmed asset and loss rules. The two capital results net to£500 loss.

A separate contractual periodic reward worth £300 remains a separate income entry under the assumed revenue classification. Do not deduct the £500 capital loss from that £300 as if all “yield” were one category. Keep deposit valuations, LP rights, the exit breakdown and reward entitlement. Different ownership terms or accumulated capital growth can change this assumed analysis.

Proposed no-gain/no-loss reform intended from 6 April 2027

On 13 July 2026 the government announced a measure for certain single-cryptoasset lending, borrowing and automated-market-making arrangements. The draft proposes no-gain/no-loss treatment for qualifying transfers, deferring CGT until an economic disposal.

The policy paper’s intended operative date is6 April 2027; it accompanies draft legislation for Finance Bill 2026–27, as explained in the official July 2026 consultation response. At this 9 October 2026 review, an announced date is not an enacted exemption for a 2025/26 or 2026/27 return. For qualifying automated market makers, entry is intended to be NGNL where the interest relates to the same types of invested cryptoassets. On exit, treatment depends partly on whether the quantities returned match the quantities invested; differences can still produce gains or losses.

Check the final Act, commencement provisions and qualifying arrangement before relying on any future reform. Preserve the current-law computation and the protocol terms so that any later statutory change can be assessed against the actual transaction.

Self Assessment, records and software limits

Miscellaneous or trading income and capital gains go to different parts of Self Assessment. HMRC's public guidance says taxpayers with total miscellaneous income between £1,000 and £2,500 should contact HMRC, while those over £2,500 generally register for Self Assessment. Capital gains and disposals follow their own reporting thresholds and pages.

Keep wallet addresses, exchange CSV files, transaction hashes, protocol terms, sterling valuations and evidence of beneficial ownership. Own-wallet transfers must preserve section 104 history. A report should mark missing prices and ambiguous contracts for review rather than claim “95% accuracy”. The UK HMRC reporting guide and UK CARF guide cover filing and platform information.

Frequently asked questions

Official sources

• HMRC CRYPTO21200: proof-of-stake rewards
• HMRC CRYPTO61214: income or capital nature of DeFi returns
• HMRC CRYPTO61620: beneficial ownership and DeFi disposals
• HM Treasury/HMRC: draft no-gain/no-loss measure, intended 6 April 2027
• HMRC: receiving cryptoassets and miscellaneous income

Sources checked on 9 October 2026. The 2027 measure is not yet the rule for 2026 transactions; final legislation should be checked when preparing later returns.

Hinweis: Dieser Artikel dient ausschließlich zur allgemeinen Information und stellt keine Steuerberatung dar. Für individuelle Steuerberatung wende dich an einen zugelassenen Steuerberater.