HMRC Outlines "No Gain, No Loss" Framework for Crypto Lending and Liquidity Pools
British tax authorities have outlined support for deferring capital gains obligations on decentralized finance interactions. HM Revenue and Customs proposed a “no gain, no loss” framework for crypto lending and liquidity pool arrangements in documents published this week.
Current regulations treat protocol deposits as taxable disposals even when users collateralize holdings or generate yield. The revision would postpone tax obligations until users execute actual economic disposals through sales or trades realizing gains or losses.
Practically, users depositing crypto into lending protocols or contributing tokens to automated market makers would avoid immediate taxation. Tax liability would trigger only when eventually selling or trading assets in ways that produce genuine economic outcomes.
Industry Welcomes Potential Changes
Aave CEO Stani Kulechov welcomed the development, calling HMRC's recognition that DeFi deposits are not disposals a major victory for U.K. users. The company supports the approach and hopes to see changes reflected in legislation soon.
The proposal aims to align tax treatment with how decentralized finance actually operates. Current rules create administrative burdens and tax outcomes disconnected from economic reality within the sector.
The framework would also cover complex multi-token arrangements used in decentralized protocols. Users receiving more tokens back than deposited would face taxation on gains, while those receiving fewer would claim losses.
Consultation and Remaining Concerns
The model remains under development as the government continues consulting tax professionals and DeFi developers. Thirty-two formal responses arrived from major industry participants, including Aave, Binance, Deloitte and CryptoUK, with most supporting the shift citing administrative burdens under existing regimes.
Some respondents warned that alternative models treating every token movement as taxable or applying repo-like rules could increase complexity for retail users. Others stressed needs for clear definitions and consistency with other jurisdictions.
DeFi usage in Britain remains complicated by taxable events even under new proposals. Purchasing Ethereum, converting to wrapped Ethereum, and liquidating gains from DeFi activity will still trigger tax obligations.
Proposed qualifying crypto-asset definitions would exclude tokenized real-world assets and traditional securities. This keeps scope focused on typical DeFi tokens rather than regulated financial instruments. One remaining concern involves potential requirements for reporting high transaction volumes, creating challenges for individuals without advanced tracking software. HMRC indicated ongoing work with software providers to assess reporting burdens and continues to engage with the sector while evaluating the case for making changes into law.