HMRC’s announcement introduces draft legislation with effect from 6 April 2027 intended to align the tax treatment of certain cryptoasset arrangements more closely with their economic substance, particularly for cryptoasset loans, liquidity pools and eligible stablecoins. The objective of these changes is to align the tax treatment closer to the economics of the arrangements, such that gains and losses are recognised only when there is an economic disposal of the underlying cryptoasset.
Crypto loans
Single cryptoasset lending arrangements
For individuals and trustees, the key change is a proposed no gain/no loss rule for certain transfers into and out of cryptoasset lending arrangements. Capital gains tax (CGT) could still arise where the arrangement falls outside the proposed no gain/no loss rules — for example, because there is an economic disposal of the cryptoasset or the taxpayer receives a different asset with materially different rights.
Single cryptoasset borrowing arrangements
Where an individual or trustee borrows cryptoassets, they will be treated as acquired at market value, and when the same quantity of cryptoassets are transferred back, they will be treated as transferred at that same value (so a no gain/no loss transfer). Collateral will be disregarded for CGT purposes.
Again, CGT may arise where the arrangements fall outside the proposed rules, for example where it becomes apparent all the cryptoassets will not be repaid to the lender.
Automated Market Maker arrangements (liquidity pools)
Where an individual or trustee deposits or withdraws the same quantity of cryptoassets from a liquidity pool, there will be no gain/no loss. CGT may still arise where there is a difference between the quantity of the cryptoassets provided and those withdrawn.
Taxation of stablecoins
The proposal is to introduce new rules to treat eligible stablecoins more like money for tax purposes. For individuals and trustees, it means exempting the disposal of eligible stablecoins from CGT, and taxing interest-like returns in relation to eligible stablecoins as savings income.
Comment
These are encouraging proposals that could remove some of the administrative burden involved with DeFi/Stablecoin transactions and ‘dry’ tax charges where there has been no real economic disposal.
The proposed treatment of stablecoins as money-like will be of particular interest to Financial Services companies and is an early example of the tax neutrality envisaged in the first report of the Wholesale Digital Markets Champion (the ‘Woolard Report’) published on 13 July. The treatment of returns as interest will be generally positive for new and innovative use cases, but alignment to current rules for interest withholding and reporting will need to be considered.
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