UK HMRC proposes “No Gain, No Loss” tax treatment for DeFi crypto

The UK government has announced a draft rule that would treat crypto‑lending and DeFi liquidity‑pool deposits as “No Gain, No Loss” (NGNL) events, deferring any capital‑gains tax until the underlying asset is truly disposed of [1]. The change aims to remove the current requirement that moving tokens into a lending protocol counts as a taxable disposal, a rule that HMRC says creates “disproportionate administrative burdens” for users [3].

Tax rule change details

HMRC’s policy paper proposes amending the Taxation of Chargeable Gains Act 1992 so that depositing crypto into a DeFi lending protocol or an automated market‑making (AMM) pool no longer triggers an immediate capital‑gains event. Instead, the transaction receives NGNL treatment, meaning any gain or loss is recognised only when the investor makes an “economically meaningful” disposal of the underlying crypto [1][2]. The same logic applies to borrowing arrangements, where the borrowed crypto is deemed acquired at market value at the time of borrowing and any collateral is ignored for CGT purposes [2].

The proposal follows a series of consultations that began with a 2022 call for evidence, continued with a 2023 public consultation, and were summarised in the Budget 2025 response [2]. HMRC argues that the current rules can label a simple transfer into a lending pool as a disposal, even though the investor retains exposure to the asset, creating uncertainty and paperwork for taxpayers [1][3].

Expected reach and fiscal impact

HMRC estimates the NGNL rules will affect roughly 700,000 individuals and trustees who engage in qualifying DeFi activities [2][3]. While the measure is not expected to have a “significant macroeconomic impact,” final costing will be examined by the Office for Budget Responsibility at a later fiscal event [2]. The draft legislation is open for technical feedback before it is formally enacted, giving market participants more than a year to adjust to the new framework [1].

What to watch

• Legislative progress – Monitor the UK Parliament’s passage of the draft amendment and any amendments that may alter the April 2027 start date.
• Technical feedback – HMRC’s consultation period may reveal additional qualifying conditions or exclusions that could affect the scope of the NGNL treatment.
• On‑chain activity – Watch for shifts in the volume of UK‑based crypto deposits into DeFi lending and AMM pools, which could signal how quickly users adopt the new tax approach.

The NGNL proposal signals a shift toward aligning UK tax policy with the economic realities of DeFi, potentially reducing compliance costs for a sizable cohort of crypto participants while preserving the tax base for genuine disposals. How the final rules shape investor behaviour and the broader UK DeFi ecosystem remains to be seen.