The UK is moving toward one of its most meaningful crypto tax reforms to date, as HM Revenue and Customs (HMRC) proposes a new “no gain, no loss” (NGNL) framework designed to ease the tax burden for decentralized finance users.
The model would fundamentally change how DeFi deposits, lending, and liquidity provision are treated, shifting away from today’s system where routine protocol interactions can trigger complex capital-gains calculations. The proposal follows a 2023 consultation and is being positioned as a practical step toward making the UK a more crypto-friendly jurisdiction.
A Framework Built Around Economic Reality
Under the proposed NGNL approach, users who deposit tokens into lending pools or liquidity mechanisms would no longer face immediate capital-gains tax implications. HMRC’s logic is simple: these actions rarely represent an intention to dispose of assets, and treating them as taxable events has created administrative headaches for everyday crypto users. Instead, tax liability would arise only when an economic disposal occurs, such as selling an asset, swapping it into another token, or converting it to fiat. The goal is to align taxation with actual financial outcomes, rather than protocol-specific mechanics.
Reduced Complexity for DeFi Activity
For years, DeFi participants in the UK have dealt with a reporting environment that treated nearly every interaction, from staking to entering a liquidity pool, as a taxable disposal. The new NGNL system would remove that friction and significantly reduce the number of reportable events. While users would still need to calculate gains at the point of an eventual sale or exchange, the day-to-day tracking burden would be far lighter. HMRC argues that this makes DeFi taxation both clearer and more reflective of how users behave on-chain.
Returns Become Revenue for Tax Purposes
One of the biggest structural changes included in the proposal is the treatment of staking rewards, interest, and other protocol-generated income. HMRC intends to classify all such returns as revenue in nature, placing them under a new miscellaneous income charge for crypto transactions. This provides clarity for taxpayers, though it may increase the tax rate on some forms of yield depending on an individual’s income bracket. Nonetheless, industry leaders, including Aave’s CEO, have publicly supported the model, describing it as a “major win” for UK DeFi users seeking predictable rules.
Open Questions and Next Steps
Although the proposal has been well-received, some details remain unresolved. HMRC has not provided a final implementation timeline and continues to consult with industry figures to refine the technical aspects. Tokenized real-world assets and traditional securities would not fall under the NGNL system, leaving a portion of the tokenization market outside the new framework. High-volume traders would still face detailed reporting requirements, given the scale and frequency of their transactions.
For now, the UK appears committed to building a more coherent, economically grounded system for DeFi taxation, one that could provide a model for other major jurisdictions watching closely.