The UK tax authority, His Majesty’s Revenue and Customs (HMRC), has introduced new rules to reform taxation in decentralized finance (DeFi) protocols. The 'no gains, no loss' (NGNL) rule will defer Capital Gains Tax (CGT) for about 700,000 DeFi users until they sell their assets.
The NGNL rules apply to crypto assets deposited into interest-bearing protocols, liquidity pools, or as collateral. HMRC classifies shifting tokens using smart contracts as a 'tax-neutral' event, but only when there is an 'economic disposal', such as selling or swapping assets, will it be considered taxable.
HMRC also considers staking yields, mining returns, airdrops, interest, rewards, and job payments as miscellaneous income, subject to Income Tax of up to 45% in the year they are received. The legislation will incorporate strict crypto transaction tracking to eliminate tax disputes.