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UK treasury's taxation department starts consultation on DeFi taxes

The HM Revenue and Customs of the UK Treasury is mainly seeking opinions from the industry on processes for taxing DeFi lending and staking, which could eventually lead to legislation

Shashank Bhardwaj
Published: May 1, 2023 10:51:42 AM IST

UK treasury's taxation department starts consultation on DeFi taxesImage: Shutterstock

Decentralised Finance (DeFi) in the United Kingdom is set to receive further scrutiny from the UK Treasury from a tax angle. Set to be a collaborative project, the UK government has initiated a consultation, inviting opinions and feedback from the crypto industry and its professionals, investors and firms.

Think tanks and industry associations were also invited to submit inputs on DeFi taxation in the UK.

The HM Revenue and Customs arm of the UK Treasury will continue the consultation till June 22, which is part of a long-drawn process to develop a law around the taxation of DeFi activities subsequently.

Crypto used in non-DeFi transactions would likely be taxed under Capital Gains if they are completely disposed of, but such taxes wouldn’t apply to those crypto assets specifically used in DeFi operations like staking and lending.

Mainly focusing on DeFi staking and lending, the consultation of the UK Treasury would aim to develop a tax structure for staking and lending of crypto through a third party, commonly known as centralised finance.

“To reduce the administrative burden for participants, the new tax framework could treat all DeFi returns as being revenue in nature and charged to a new miscellaneous income charge specific for cryptoasset transactions,” stated the HM Revenue and Customs of the UK Treasury.

After the current consultation is over, the authorities would move towards drafting a law around the proposed changes. After the legislation is implemented, they would monitor, review and evaluate it.

The statement also mentioned the fact that the consultation and a future law for DeFi taxation would not be an alternative for the overall regulation of the crypto industry. As a part of the policy-making process, the consultation of the UK Treasury would try to create a better way of structuring the taxes on crypto assets used in DeFi.

The writer is the founder at yMedia. He ventured into crypto in 2013 and is an ETH maximalist. Twitter: @bhardwajshash

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