The United Kingdom is advancing a groundbreaking proposal for a decentralized finance (DeFi) tax framework that could revolutionize how crypto investors are taxed. The key innovation is the "No Gain, No Loss" (NGNL) approach, which would defer capital gains tax until assets are converted to cash, rather than taxing every intermediate DeFi transaction. This marks a significant shift from the current system, where depositing crypto into DeFi protocols is often treated as a taxable event.
According to consultations by HM Revenue and Customs (HMRC), the proposed framework addresses single-token lending, crypto borrowing, and automated market makers (AMMs) like Uniswap. For example, entering and exiting a DeFi platform would not trigger capital gains tax; instead, tax would apply only when tokens are sold for fiat. Similarly, in AMMs, gains or losses would be calculated based on the difference in token quantities upon exit, not at deposit.
The initiative responds to criticism of HMRC's 2022 guidance, which stakeholders argued created administrative burdens and misaligned with economic reality. The CEO of Aave described the move as a major victory, highlighting its potential to encourage DeFi participation. While the proposal is not yet law and remains under consultation, it signals the UK's ambition to become a global leader in crypto-friendly regulation, offering benefits like tax deferral, reduced complexity, and increased investor confidence.
Notably, the UK's latest Budget did not introduce new crypto-specific taxes but extended income-tax threshold freezes, increasing effective tax pressure on traders. However, the DeFi tax overhaul could position the UK as a more attractive jurisdiction for crypto businesses, with implementation expected to progress following further reviews.
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