UK Treasury Targets DeFi: Taxing Staking & Lending
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UK Treasury Targets DeFi: Taxing Staking & Lending

written by John Murphy | April 28, 2023

According to recent news about DeFi Taxing Staking & Lending, regulatory changes are proposed to simplify how the DeFi returns have texed. These changes reduced the administrative burden of the taxpayers.

On decentralized finance (DeFi) protocols, the treatment of borrowing and lending on tax is going to change in the United Kingdom. The treasury’s taxation arm has sought input into a new possible regime.

Key Takeaways:

  • UK Treasury is seeking input on proposed changes to DeFi tax treatment for borrowing and lending activities until June 22, 2023.
  • DeFi transactions’ crypto assets won’t trigger Capital Gains Tax (CGT) events, except for non-DeFi transactions.
  • The consultation aims to align taxation for staking and lending DeFi transactions and make it easier to comply with regulations.
  • The goal is to reduce taxpayers’ administrative burden and costs while reflecting the economic substance of transactions.
  • The five-step process includes consultation, implementation, monitoring, reviewing, and evaluating the changes, and drafting legislation, initiated by the UK government in July 2022.

Nosis Took to Twitter and made an announcement that the UK treasury tax arm is looking for feedback on proposed changes. Feedback aims to prevent taxable events using crypto in DeFi transactions.

A 27 April customs and HM Revenue consultation will run until 22 June. It asks for professionals, investors, and firms that, along with the representatives, engage in DeFi activities. It thinks thanks to submitting their views on the DeFi tax treatment proposed by the government.

According to the proposed legislative changes, in DeFi transactions, crypto will not treat as a disposal for the tax used. It usually triggers the Capital Gains Tax (CGT) event.

However, CGT will apply when disposing of cryptocurrencies in a non-DeFi transaction, and a taxable event will occur.

According to the consultation, there must be certain criteria for any transaction for considering a DeFi transaction. TheLadyCryptonaire Took to Twitter and made an announcement that on DeFi lending and staking tax, the UK treasury seeks input.

There is an initial transfer of crypto assets from the one who lends to the other who borrowed, transfer through smart contacts. According to the contract, the borrower is bound to return the tokens.

Additionally, the banker has the right to withdraw the same token’s amount. This amount is initially secure and pledged.

The consultation aims to develop a framework that better aligns the cryptocurrency assets’ taxation. This framework is used in staking and lending DeFi transactions and makes easy regulation compliance for users.

Wen3 took to Twitter and made an announcement that changes in the proposed regulation seek, to simplify how DeFi returns taxed and reduce the administrative burden for taxpayers.

The second step of the five-step process is consultation, followed by implementing and monitoring, reviewing, and evaluating the change, drafting legislation, etc.

Moreover, In July, the British government initiated the process by requesting feedback on staking and crypto asset taxation with DeFi.

The main objective of the administrative and simple process is to achieve a reduction in the taxpayer’s participation costs in DeFi. At the same time researching how tax treatment may better reflect the transaction’s economic substance.