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HM Treasury opens consultation for taxing DeFi cryptoassets

HM Treasury opens consultation for taxing DeFi cryptoassets

HM Treasury has launched a consultation into modifying the tax treatment of decentralised finance (DeFi) lending and staking.

The consultation aims to create a framework that aligns “the taxation of cryptoassets used in DeFi lending and staking transactions (DeFi transactions) with the underlying economic substance, whilst reducing the administrative burden on users.

The proposal explains that one of the measures announced last April was to explore and resolve specific issues regarding the taxation of the DeFi activities of lending and staking. “Some stakeholders have highlighted circumstances where the current rules for Capital Gains Tax (CGT), when applied to DeFi, are inconsistent with the substance of the activity.”

Under the proposed changes, Capital Gains Tax (CGT) would apply (triggering the taxable event) when cryptocurrency is disposed of in a non-DeFI transaction.

Source: HM Treasury

The consultation will run for 8 weeks, from the 27th of April to the 22nd of June 2023, and seeks contributions from investors, professionals and firms engaged in DeFi activities. These may include technology and financial service firms; trade associations and representative bodies; academic institutions and think tanks; and legal, accountancy and tax advisory firms.

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