The UK’s tax authority is asking people for their opinions on proposed new rules, which are designed to make it easier for people who use cryptocurrencies to pay their taxes.
UK tax advisors have praised new proposed rules that would reduce the tax burden on crypto users who engage in decentralized finance (DeFi) lending and staking activities. These advisors believe that the proposed rules will bring more certainty to the crypto industry.
The UK government’s tax authority, HMRC, has announced that it will seek feedback from the crypto industry for the next eight weeks on its proposed changes to rules around DeFi lending and staking activities.
Under the new framework proposed by HMRC, not all transactions involving DeFi lending or staking would be subject to capital gains tax charges. The tax would only be triggered for certain activities.
Tax advisors in the U.K. believe that proposed rules for DeFi lending and staking activities are a positive step towards providing certainty for the country’s crypto industry. The new framework suggests that only some activities will trigger capital gains tax charges for DeFi lending or staking instead of all transactions. This move is seen as a contrast to the U.S. regulatory environment, which has been seen as creating confusion.
Seymour praised HMRC for being the first tax authority to offer clear guidelines for DeFi.
David Lesperance, who works at Lesperance Associates as a managing director and tax advisor, said that the proposal by HMRC was a great outcome. At the same time, Lisa Cameron, who is the chair of a cross-party crypto group in the Parliament, expressed optimism that this would be a beginning towards a complete tax structure.
Making crypto taxes easier to understand.
The government is having discussions with the crypto industry to make specific rules for DeFi markets, which is similar to what they have done for repo and stock lending.
Ian Taylor, a board advisor at CryptoUK, had said in July that the current tax rules for crypto lending were not suitable for DeFi lending and were causing too many taxable events. He called for new rules that were specific to DeFi.
Lesperance thinks that the proposed rules will make things easier for the crypto industry, but Seymour does not agree. Seymour thinks that there could have been a chance to make the rules simpler.
Seymour mentioned another option that he believed was simpler. This option was initially proposed by the HMRC and suggested that transferring crypto for lending and staking be treated as transactions with no gain or loss. This means that tax liabilities would only be deferred until the assets were disposed of economically.
Seymour believes that the proposed approach of using repo and stock lending rules, which will only exclude some lending and staking activities from capital gains tax, will make it more difficult to track taxable events.
The HMRC stated in its consultation that the “no gain, no loss” approach would require more work and offer less flexibility to adapt to changes in DeFi.
Seymour also mentioned that people may misunderstand and think that there won’t be any taxable events in DeFi, which could lead to problems.
Seymour mentioned that there is a risk that people might think there won’t be any taxes involved in DeFi transactions. He explained that the general public may not have sufficient knowledge of tax laws and might not read the HMRC’s guidance, so educating them will still be crucial.
