UK Government Seeks Expert Views on DeFi Taxation

The UK government is seeking public views on the taxation of digital assets loans and staking within the context of decentralized finance (DeFi). The consultation will run for eight weeks, from July 5 to August 31.

DeFi lending and staking refer to activities that give users who put crypto asset tokens into a pool or lend them to other individuals or platforms for a set period the opportunity to earn passive income returns, generally known as interest.

In April 2022, the authorities unveiled a package of policies intended to ensure that the UK financial services sector stays at the forefront of innovation, attracts capital and personnel, and expands consumer choice. The commission’s main task was to recommend changes in the law that would allow for fair taxation of decentralized applications (DeFi) loans, debt, and staking.

The government will use the information received from this call for evidence to determine whether any changes are necessary to reduce administrative hassles and costs for taxpayers involved in these transactions, as well as whether the tax treatment can be improved with respect to the underlying economics of those deals.

The HMRC is keen to hear from investors, professionals, and businesses engaged in DeFi activities, such as technology and financial service companies, trade associations and representative bodies, academic institutions and think tanks, and legal, accounting, and tax advisory firms.

In May, the government published a consultation aiming to reduce the risk for investors holding stablecoins by giving the Bank of England the power to appoint administrators to oversee insolvency arrangements of failed stablecoin issuers.

HMRC will consider meeting with interested parties to discuss the topics raised in this consultation. Following this call for evidence, the government will release a summary of comments as well as its next steps.

The latest news comes just a few days after reports that the UK government is also mulling a law that could mitigate the risks posed by crypto-assets and help combat economic crime. This change has been prompted by the country’s increasing criminality.