HMRC has released a long-anticipated update to the Crypto assets Manual on the tax treatment of “Decentralised Finance (DeFi)” – which has been an increasingly popular crypto investment space. The update seeks to clarify the UK tax treatment of certain DeFi arrangements for the first time – it should be noted that HMRC is among the first global tax authority to attempt this – and anyone invested in or borrowing with DeFi should take note.
HMRC have stated that any periodic returns from staking or lending in DeFi arrangements will not be treated as interest, despite the commercial similarity of these arrangements to a traditional loan in conventional currency.
The new HMRC guidance sets out a number of factors to consider – while acknowledging that DeFi is a constantly evolving area.
To avoid any unexpected or unwelcome tax consequences, investors and participants in the DeFi space should familiarise themselves with the latest update to the HMRC Crypto assets Manual – though some uncertainties remain.
Please contact our team for further information.