The United Kingdom has taken a concrete step toward modernizing crypto tax rules for decentralized finance (DeFi). In a newly published consultation outcome, HM Revenue & Customs (HMRC) says it is developing a “no gain, no loss” (NGNL) approach for cryptoasset loans and liquidity pools—a shift that could defer capital gains tax until there’s a true economic disposal rather than when tokens simply enter or exit a protocol. The proposal aims to reduce administrative burden and end so-called “dry tax” outcomes, where investors owe CGT without receiving cash.
Mainstream coverage summed it up succinctly: the UK is signaling support for NGNL across lending and automated market maker (AMM) pools, bringing tax closer to how DeFi actually works. But nothing is final yet—the government says it will keep assessing whether to legislate.
What HMRC just proposed
HMRC’s outcome document describes an approach under which several common DeFi actions would not crystallize CGT immediately. Instead, gains/losses would be calculated when there’s an economic disposal—for example, when you later sell the tokens you receive back. The paper outlines three buckets: single-token arrangements, borrowing arrangements, and AMMs (multi-token liquidity pools).
- Single-token lending: Moving a token into, and later out of, a lending arrangement would be treated as disposals on an NGNL basis—so no taxable gain or loss at those steps. Any gain/loss arises when you finally sell the returned tokens.
- Borrowing with crypto collateral: Borrowing crypto (and posting collateral) would be disregarded for CGT. If you sell the borrowed tokens and later buy them back to repay the loan, that buy-sell cycle is where CGT applies. HMRC even gives a worked example (borrow USDC, sell, then repurchase cheaper → the difference is your gain).
- Automated market makers (AMMs): Deposits into AMMs (e.g., ETH/USDC pools) would be NGNL on entry. On exit, the rules would compare the number of tokens received to what you contributed: same number = NGNL; more of a token = recognize a gain equal to the market value of the extra; fewer = recognize a loss for the missing amount.
HMRC notes these changes are being developed first for individuals, with possible extension to corporates later. The government stresses it’s still evaluating the case for legislative change.
Why this is a big deal for UK crypto tax
Under HMRC’s existing Cryptoassets Manual (CRYPTO60000+), many DeFi interactions can trigger a disposal for CGT if there’s a change in beneficial ownership—including common actions like depositing into a smart contract or liquidity pool. That’s why users have sometimes faced CGT calculations (and paperwork) despite receiving no cash and retaining similar market exposure. The proposed NGNL framework directly tackles those pain points.
The outcome paper explicitly references industry concerns about administrative burden and dry charges (tax due when tokens are illiquid or later fall in value). NGNL is presented as a way to better match tax to economic reality, particularly for AMM positions that can otherwise create multiple notional gains/losses without any real “exit.”
Financial media likewise described the proposal as a practical win for DeFi users, shifting the tax point to genuine disposals and simplifying reporting for DeFi lending and liquidity pools.
What’s different from the status quo?
- Today: HMRC guidance can treat entering or leaving DeFi arrangements as CGT disposals if beneficial ownership changes, even when you expect to receive the same token type back later (e.g., LP tokens stand in for rights you receive). That can mean lots of small reportable events and potential tax with no fiat proceeds.
- Proposed: Many of those interim steps would be no gain, no loss, with CGT focused on the final sale or the net outcome when you unwind a position (including the special rules HMRC sketches out for AMMs).
For context, Big Four guidance has long explained that the UK applies general tax principles to crypto—no bespoke regime—which is exactly why DeFi created tricky edge cases. NGNL is the government’s attempt to right-size the CGT trigger for this specific corner of the market.
The fine print—and the caveats
- It’s not law yet. HMRC says it’s considering the NGNL approach and the “case for making legislative change.” Translation: expect further engagement and drafting before anything becomes operable.
- Scope and design are still evolving. The paper separates single-token, borrowing, and AMM cases because the mechanics—and fair tax outcomes—differ. Stakeholders broadly favored NGNL for AMMs but flagged edge cases (partial exits, variable returns) that HMRC will need to address in detailed rules.
- Income vs. capital remains a live question. HMRC’s manuals already treat some returns from DeFi activity as income in certain circumstances. The outcome paper discusses options (including reliefs or elections) to reduce mismatches between income and capital treatment—another area to watch as text hardens.
How the industry is reading it
Coverage from major outlets frames the proposal as the UK catching up with DeFi realities—deferring CGT until economic disposal can make compliance simpler and reduce punitive “paper gains.” That narrative, however, comes with the reminder that legislative follow-through is needed before taxpayers can rely on NGNL for their 2025/2026 filings.
At the same time, HMRC’s move underscores a broader policy direction: the UK wants to encourage innovation while ensuring the tax base is fairly measured. The consultation record shows broad support for reform from firms and advisors precisely because it aligns tax with how liquidity pools and DeFi lending actually function.
What this means for UK DeFi users
- Fewer CGT “micro-events.” NGNL on deposits/withdrawals could drastically cut the number of reportable disposals for liquidity providers and lenders.
- Tax when it feels like a disposal. Gains/losses appear at exit (sale of returned assets or net difference on AMM withdrawal), not when you simply interact with a protocol.
- Clearer rules for borrowing. Locking collateral and drawing a loan wouldn’t trigger CGT; selling the borrowed tokens (and later rebuying to repay) is what’s taxed—just like other buy/sell cycles.
Until legislation lands, though, users should continue to follow the current HMRC manual—where DeFi interactions can still be disposals depending on beneficial ownership. Professional guidance remains prudent.
Conclusion
The UK is moving toward a cleaner, more intuitive DeFi tax framework. HMRC’s proposed no gain, no loss treatment for lending and liquidity pools would push capital gains tax to the point of real economic disposal and could end many dry tax headaches for DeFi users. It’s a policy direction, not yet law—but it’s a meaningful signal for anyone navigating UK crypto tax reform. Keep an eye on how the draft evolves, especially the AMM mechanics and the interplay between income and capital treatment.