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

Core Viewpoint - The U.K. government is proposing a new tax framework for decentralized finance (DeFi) that could alleviate tax burdens for users by adopting a "no gain, no loss" (NGNL) approach to crypto lending and liquidity pool arrangements [1][4]. Tax Framework Changes - The current tax system treats deposits in DeFi protocols as disposals, triggering capital gains tax even if no actual economic gain has occurred [2]. - The proposed NGNL approach would defer capital gains tax until a true economic disposal occurs, meaning users would not be taxed at the point of deposit [3][4]. Industry Reactions - Stani Kulechov, CEO of Aave, expressed support for the new approach, highlighting it as a significant win for U.K. DeFi users and emphasizing the need for these changes to be reflected in tax legislation [4]. - The proposal aims to align tax rules with the operational realities of DeFi, reducing administrative burdens and improving tax outcomes [4]. Consultation Process - The government is still refining the model, consulting with tax professionals and DeFi developers, having received 32 formal responses from industry players like Aave, Binance, Deloitte, and CryptoUK, most of whom support the NGNL shift [6]. - Concerns were raised about alternative models that could complicate the tax process for retail users, emphasizing the need for clear definitions and consistency with other jurisdictions [7]. Remaining Taxable Events - Despite the proposed changes, using DeFi in the U.K. will still involve taxable events, such as purchasing ether (ETH) and converting it to wrapped ether (WETH), which will still incur taxes upon liquidation of gains [8].