UK Proposes ‘No Gain, No Loss’ Tax Rule for DeFi in 'Major Win' for Users

The U.K. government is working on a new tax framework that could give decentralized finance (DeFi) users a break. Under proposals published this week, HM Revenue and Customs (HMRC) signaled support for a “no gain, no loss” (NGNL) approach to crypto lending and liquidity pool arrangements.

Under the current system, when a DeFi user deposits funds into a protocol, even if to monetize those funds or take out a loan against them, the move could be treated as a disposal and trigger capital gains tax. The move could defer capital gains tax until there is a true economic disposal.

In practical terms, this could mean that users who deposit crypto into lending protocols, or who contribute tokens to automated market makers (AMMs), would no longer be taxed at the point of deposit. Instead, tax would apply when they eventually sell or trade assets in a way that realizes a gain or loss.

Stani Kulechov, CEO of major DeFi platform Aave, welcomed the outcome on X, noting that HMRC’s recognition that DeFi deposits are not disposals is “a major win for U.K. DeFi users.” He added: “We’re fully supportive of this approach and hope to see these changes reflected in U.K. tax legislation soon.”

The proposal aims to bring tax rules in line with the way DeFi actually works and would help reduce administrative burden and tax outcomes that do not reflect economic reality within the space.

HMRC’s new approach would also apply to complex multi-token arrangements used in decentralized protocols. In these cases, if users receive more tokens back than they deposited, the gain would be taxed. If they get fewer, it would be treated as a loss.

Still, the model isn’t final. The government continues to consult with tax professionals and DeFi developers to fine-tune the scope and mechanics of the rules. A total of 32 formal responses were submitted, with input from major industry players like Aave, Binance, Deloitte, and CryptoUK. Most respondents supported a shift to NGNL, citing administrative burdens and uncertainty under the existing regime.

Some warned that alternative models, such as treating every token movement as a taxable event or relying on repo-like rules, could increase complexity, especially for retail users. Others stressed the need for clear definitions and consistency with how other jurisdictions treat crypto assets.

It's worth noting that the process of using DeFi in the U.K. remains clogged with taxable events, even under the new proposals. Purchasing ether ETH$2,955.81, converting that to wrapped ether (WETH) and ultimately liquidating any gains from DeFi activity will still be taxed.

The government’s proposed definition of qualifying cryptoassets would exclude tokenized real-world assets and traditional securities. That keeps the scope focused on typical DeFi tokens rather than regulated financial instruments.

One remaining concern is that even under NGNL, users might still need to report high volumes of transactions, a potential challenge for individuals without advanced tracking software. HMRC said it is working with software providers to assess the burden.

HMRC has not set a timeline for legislation but says it will continue engaging with the sector as it evaluates the case for making the changes law.