UK Proposes New DeFi Tax Framework to Ease User Burden

The UK government, through HM Revenue and Customs, has proposed a new tax framework to benefit DeFi users, aligning tax regulations with cryptocurrency lending, a step unveiled in recent consultations.

This proposal simplifies tax compliance, promising reduced capital gains tax for DeFi activities, signaling UK’s intent to foster a crypto-conducive regulatory environment and enhance DeFi user engagement.

UK Aims for DeFi Tax Reform with “No Gain, No Tax” Proposal

The UK government is looking to overhaul how taxes apply to DeFi transactions. HM Revenue and Customs is proposing a “no gain, no tax” measure, particularly for cryptocurrency lending and liquidity pools. This principle would apply tax only during a true economic disposal rather than on deposits.

Current systems often tax DeFi users when they deposit assets, sparking criticism regarding administrative burdens. The new model suggests deferring tax until these assets are actually sold, offering relief to users.

UK Government Official, UK Government: “The proposed tax model would defer CGT until a true economic disposal, removing the immediate tax burden when depositing into DeFi protocols.”

Many industry players, including Aave and Binance, have shown support during consultations. They emphasize reduced uncertainty for DeFi protocols. The government has yet to announce a final legislative timetable.

Potential UK Leadership in Crypto Regulation Boosts Market Confidence

Did you know? The proposed tax changes could place the UK as a leader in crypto-friendly regulation, echoing historical tax reforms that spurred industry growth.

As per CoinMarketCap, Ethereum (ETH) is currently priced at $3,009.90 with a market cap of $363.28 billion. Despite recent declines, Ethereum remains a dominant force with 11.69% market share. Trading volume reached $14.71 billion, marking a 33.59% drop in activity.

Coincu research insights indicate simplified tax obligations may bolster Ethereum’s DeFi ecosystem, enhancing liquidity and driving long-term growth. This could also prompt other regions to revise cryptocurrency regulations.