The UK's tax authority, HMRC, has introduced a new 'no gains, no loss' (NGNL) rule to reform taxation in decentralized finance (DeFi) protocols. The legislation aims to simplify and reduce paperwork for both DeFi users and the tax authority.
Starting April 6, 2027, the NGNL rules will apply to crypto assets deposited into interest-bearing protocols, liquidity pools, or as collateral. HMRC will classify shifting tokens using smart contracts as a 'tax-neutral' event, with a taxable event occurring only when there is an 'economic disposal', such as selling crypto assets on an exchange or withdrawing more assets than initially deposited.
Staking yields, mining returns, airdrops, and rewards will be taxed as income up to 45% in the year received. HMRC will require CARF-aligned transaction reporting from platforms to verify deferral, which should boost compliance and UK crypto adoption.