HMRC to defer CGT on certain crypto lending and liquidity pool transactions from 2027

What HMRC is changing

Under the measure published Monday, certain disposals connected to cryptoasset loans and liquidity pool activity will no longer trigger an immediate Capital Gains Tax event. Instead, tax recognition will generally be deferred until the participant makes what HMRC describes as an economic disposal.

The revised treatment applies where a person enters a single cryptoasset lending arrangement and, in exchange, acquires or disposes of an interest for cryptoassets of the same type as those originally invested. In those cases, the transaction will be treated on a no-gain-no-loss basis.

How lending and liquidity pools are covered

HMRC also set out the treatment for borrowing arrangements. Borrowed cryptoassets will be treated as having been acquired at market value at the time of borrowing, while any collateral provided will be disregarded for Capital Gains Tax purposes.

The measure also covers automated market-making arrangements, or liquidity pools run through smart contracts. Where a user acquires an interest in such a pool in exchange for the same type of cryptoasset, HMRC said the no-gain-no-loss treatment will apply. When the user exits the pool, the same treatment continues only to the extent that the same quantity of cryptoasset is received back as was originally contributed.

If there is a mismatch between what went in and what comes out, that difference becomes the basis for a taxable gain or allowable loss. In other words, the relief does not eliminate tax altogether; it postpones recognition unless and until the economic position has materially changed.

Why the rules are being revised

HMRC said the new approach is intended to align tax treatment more closely with the economics of lending and liquidity pool arrangements. The practical effect is that gains and losses would be recognized when a participant actually disposes of value in economic terms, rather than when assets are moved into or through certain structures.

The change follows concerns about HMRC’s 2022 guidance on the subject. According to the tax authority, stakeholders had argued that the earlier interpretation created disproportionate administrative burdens for users. By narrowing the circumstances in which a disposal is recognized immediately, the revised framework is expected to simplify compliance.

Who may be affected

HMRC estimates that around 700,000 individuals who use cryptoasset loan and liquidity pool transactions could be affected by the measure. It said the policy is not expected to have a significant macroeconomic impact. Final costing, however, will be published at a future fiscal event.

The broader UK tax position on cryptoassets remains unchanged outside these specific arrangements. Crypto is currently treated as an investment asset, and selling, swapping or spending it is generally treated as a disposal for Capital Gains Tax purposes. The rates cited by HMRC are 18% for basic-rate taxpayers and 28% for higher-rate taxpayers, with the new rules modifying that disposal treatment only in the defined cases involving cryptoasset lending and liquidity pools.