Monday, September 25, 2023
HomeDeFiUK tax office announces changes in Decentralized Finance innovation (DEFI)

UK tax office announces changes in Decentralized Finance innovation (DEFI)

The United Kingdom’s tax office, Her Majesty’s Revenue and Customs (HMRC), announced a controversial set of recommendations on Wednesday that could harm Decentralized Finance innovation (DeFi).

The amended rule focuses on how digital assets are treated in the UK for DeFi lending and staking, and whether the returns or incentives from these activities are taxed as capital or revenue. Due to the cutting-edge nature of DeFi, tax specialists were confused how the existing regulations applied to these services.

HMRC stated:

“Because the lending/staking of tokens through decentralised finance (DeFi) is a continually growing subject, it’s impossible to include all the scenarios in which a lender/liquidity provider gets a profit and the nature of that profit. Rather, some guiding principles are outlined.”

Returns from staking and lending DeFi assets will not be treated as “interest,” according to the guidance, because digital assets aren’t considered currencies in the UK, but rather property for tax reasons.

However, the advice suggests that in many circumstances, this technique will signal that “beneficial ownership of those tokens” has been moved to the platform, which could cause tax issues for stakeholders. This would imply that they were sold for tax purposes and would be subject to Capital Gains Tax.

Ian Taylor, executive director of CryptoUK stated:

“For tax reasons, HMRC considers crypto assets to be property. However, this is at odds with the approach taken by the UK government and other regulatory authorities, such as the Treasury and the Financial Conduct Authority (FCA).”

That’s all from the UK.

Related: Downward trend for DeFi in 2022: DappRadar

Kunal Krishan
Kunal is an investment space writer who firmly believes investment is something which should not be a choice but a part of everyone's life.
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