Key takeaways
- HMRC has no single DeFi rule. Treatment depends on the platform's terms and the structure of the arrangement.
- Transferring tokens to a DeFi platform is a disposal if beneficial ownership passes, which HMRC tests by whether the recipient can deal with the tokens as it wants.
- Receiving a liquidity pool token in exchange is treated as a token for token exchange, and withdrawing is a second disposal.
- Whether a return is income or capital depends on factors including whether it was agreed in advance and whether it is paid periodically. No single factor is determinative.
- The onus for records is on you, and exchange reports are not tax calculations and do not track pooled costs.
There is no single tax rule for DeFi. HMRC's position, set out in the Decentralised Finance section of its Cryptoassets Manual, is that the treatment turns on two questions of fact: whether you transferred beneficial ownership of your tokens when you lent or staked them, and whether the return you earned has the nature of capital or of income. Both answers come from the platform's terms and conditions and the way the arrangement is structured, not from the label the platform uses.
What HMRC's DeFi guidance covers
The guidance at CRYPTO61000 deals with lending and staking, and HMRC is careful to say in CRYPTO61120 that there is no statutory or legal meaning of those terms in this context. It applies to two shapes of transaction: transferring control of tokens to a borrower in exchange for a right to an equivalent quantity back later, and transferring control of tokens to a DeFi lending platform, which may be called staking or providing liquidity, with the platform transferring one or more different tokens back to you.
One point underpins everything that follows. HMRC does not treat the return as interest. CRYPTO61110 says that because cryptoassets are not considered to be currency or money, the rate of return is not interest, so provisions in the Taxes Acts that apply specifically to interest do not apply to it. That is why a DeFi return cannot simply be reported as savings income.
Is transferring tokens to a platform a disposal?
This is the question that decides whether you have a taxable gain before you have taken any money out. CRYPTO61620 says it is important to consider whether the lender or liquidity provider actually transfers beneficial ownership of the tokens, and that this requires an examination of the contract and the terms and conditions. HMRC gives two indicators:
| What the terms say | What HMRC takes from it |
|---|---|
| The recipient can deal with the tokens received as it wants | A strong indicator that it has acquired beneficial ownership, so you have disposed of the tokens |
| The recipient is specifically restricted from dealing with the tokens received | A strong indicator that it has not acquired beneficial ownership, so there is no disposal |
Where beneficial ownership does pass, there is a disposal of the loaned or staked tokens at the moment of transfer. The same test decides whether posting collateral is a disposal, which CRYPTO61640 applies in exactly the same terms.
What you are treated as receiving depends on the structure. Where you lend directly to a borrower, you have disposed of tokens for a right to receive tokens in future, which is deferred consideration. If the quantity coming back is known, section 48(1) TCGA 1992 applies and you value that future quantity at its sterling value at the time the loan is made. If the quantity is unknown, you hold a right of the kind considered in Marren v Ingles, valued at its market value when it is received. Where the return itself will be taxed as income, section 37 TCGA 1992 excludes that amount from the capital computation so it is not taxed twice.
Liquidity pool tokens
Where the platform gives you a token back, CRYPTO61130 describes the common models: no token at all; a token issued at a fixed ratio, such as 10 aETH for 10 ether; a liquidity token representing your share of the pool, where the quantity you receive and the quantity you get back depend on an exchange rate that moves; or a non-fungible token recording the terms of the loan.
Where you do receive a token, HMRC's treatment is blunt. CRYPTO61620 says this is an exchange of one token for another: your consideration for the disposal is the sterling market value of the token received from the platform, and the acquisition cost of that new token is the sterling market value of the token you transferred in. If you had to put in more than one type of token to get the pool token, the value is apportioned between those disposals on a just and reasonable basis.
Coming out is a second disposal. CRYPTO61650 says that when the liquidity provider withdraws, they dispose of the tokens the platform originally gave them, for consideration equal to the sterling market value of the tokens received back. A single round trip into a pool and out again can therefore produce two chargeable disposals and an income charge in between, with no fiat ever touching your bank account.
Is the return income or capital?
HMRC says in CRYPTO61212 that how the return is taxed depends on whether the receipt has the nature of capital or of revenue. CRYPTO61214 sets out the factors, prefaced by the admission that DeFi is a constantly evolving area and it is not possible to set out every circumstance. The factors are:
- Whether the return is known when the agreement is made. An agreed rate, for example 5% a year, indicates a revenue receipt. A return that is unknown and speculative, and could produce a loss, indicates a capital receipt.
- Whether the return is realised through the disposal of a capital asset, which indicates capital, or paid to you by the borrower or platform, which indicates revenue.
- Whether the return is paid periodically through the term, which is more likely to be income, or in one go when the principal is repaid, which is more likely to be capital.
- Whether the period of the lending is fixed or indefinite, short term or long term.
HMRC then says plainly that the list is by no means exhaustive and no single factor is determinative. The underlying question it wants answered is whether the return was earned by providing a service to the borrower or platform, or realised from the growth in value of an asset you owned.
What follows from each answer
If the return has the nature of capital, it is not chargeable to Income Tax and falls within Capital Gains Tax instead. For 2025/26 the annual exempt amount is £3,000 and gains above it are taxed at 18% within the basic rate band and 24% above it (GOV.UK Capital Gains Tax rates).
If the return has the nature of income, and you are not trading, it falls within the miscellaneous income sweep-up provisions in sections 687 to 689 ITTOIA 2005. CRYPTO61213 says the amount charged is the money's worth of the receipt, which is the pound sterling value of the tokens received, and that only the return is taxed: repayment of the principal is a capital transaction. It also notes that the trading and miscellaneous income allowance may apply, which is £1,000 a year, with amounts between £1,000 and £2,500 meaning you contact HMRC and amounts over £2,500 meaning you register for Self Assessment (GOV.UK guidance on receiving cryptoassets).
Trading is unlikely. CRYPTO61211 says HMRC expects individuals to be carrying on a trade of making DeFi loans only in exceptional circumstances, applying the same tests used for transactions in shares and securities. Our guide to staking and mining rewards covers those tests, which also decide how validator and mining rewards are taxed.
Where the treatment depends on your facts
It is worth being direct about this, because plenty of online summaries are not. HMRC does not publish a rule that says supplying liquidity is always a disposal, or that pool rewards are always income. What it publishes is a method:
- Read the terms and conditions of the platform as they stood when you used it, because whether beneficial ownership passed is decided there (CRYPTO61620).
- Work out the nature of the return against the factors in CRYPTO61214, knowing that no one factor settles it.
- Accept that two people using two platforms in the same week can land in different places, because the operating models differ.
HMRC's own officers are told in CRYPTO61214 to refer difficult cases for advice rather than decide them alone. If your arrangement is not clearly covered, that is a signal to get your facts written down and reviewed, not to pick the answer you prefer.
The record-keeping problem this creates
DeFi multiplies the number of events you have to evidence: going in, receiving a pool token, every reward credited, every rebase or exchange rate movement you realise, and coming out. Each one needs a sterling value on the day, and most of them never touch a sterling price.
HMRC's record keeping page (CRYPTO10400) puts the onus squarely on the individual and warns that exchanges may keep records for only a short period, or may no longer exist when you come to file. Your records must include the type of cryptoasset, the date of the transaction, whether tokens were bought or sold, the number of units, the sterling value at the date of the transaction, the cumulative total held, and bank statements and wallet addresses. The guidance on selling cryptoassets adds that exchange reports are not tax calculations and will not keep track of your pooled costs.
Add one thing HMRC does not list: keep a copy of the platform's terms as they were at the time. Since the tax answer turns on those terms, a screenshot taken today is weak evidence for a transaction from 2025.
Reporting DeFi on your 2025/26 return
The 2025/26 return is due online, with the tax, by 31 January 2027, and new filers should have registered by 5 October 2026 (GOV.UK deadlines). Income returns go in the other income pages in pound sterling, and disposals go in the capital gains pages, which have included a cryptoasset section on returns from 2024/25 onwards (GOV.UK). See how to report crypto on Self Assessment for the mechanics, crypto losses if a pool went against you, and our wider crypto tax guide for the general rules.
Get a second opinion on your DeFi position
If your DeFi activity is anything more than a single pool, the useful thing an accountant does is not run the numbers, it is decide the treatment and write down why. GoForma's ACCA and AAT qualified accountants file crypto Self Assessment returns for £298 plus VAT, including a Koinly licence for up to 25,000 transactions, gains worked out across every exchange and wallet, and the full return filed. A standard one-off Self Assessment return is £198. We have filed more than 7,000 tax returns and are rated 4.9 on Google from 72 reviews. See our crypto tax accountants page, our crypto Self Assessment service, or book a free consultation.
