The UK government is weighing a significant change to how decentralized finance (DeFi) transactions are taxed, with HM Revenue & Customs confirming it is actively developing a “no gain, no loss” (NGNL) approach for crypto asset loans, liquidity pools and potentially automated market makers (AMMs).
The move marks the clearest signal yet that the UK may introduce a dedicated legislative framework for DeFi taxation.
What Happened
HMRC’s updated consultation outcome, published on Nov. 26, shows broad industry support for replacing current rules, which can trigger capital gains tax (CGT) on every token movement, with a model that taxes users only when they make an actual economic disposal of their assets.
The document notes that following extensive engagement with tax professionals, industry groups and major crypto platforms, HMRC now considers the NGNL model a more workable alternative to the existing “repo-like” approach initially proposed.
Under the framework being examined, transactions within crypto lending and single-token liquidity arrangements would be treated as NGNL disposals, preventing gains or losses from crystallizing until a user ultimately exits the position.
HMRC states that this would better reflect the economic reality of these transactions, where users typically retain exposure to the same assets throughout the arrangement.
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Why It Matters
Crucially, the government is also exploring how the NGNL system could apply to AMMs, a major component of the DeFi market.
Respondents overwhelmingly argued that AMM deposits and withdrawals should not trigger tax events when no economic disposal has taken place.
HMRC acknowledges that AMMs represent a substantial share of activity and confirms this model is now under active consideration.
The potential reform comes after stakeholders warned that current rules impose disproportionate administrative burdens, especially where token balances continually rebalance.
HMRC notes that any new framework must remain flexible enough to cover emerging models, including wrapped tokens, multi-chain transactions, yield farming, aggregators and collateralized lending.
The government is now assessing whether to introduce legislative changes to implement an NGNL regime, with further engagement ongoing.
Respondents said such reforms could improve compliance, provide greater clarity and support the UK’s ambition to attract crypto asset business and innovation.
HMRC states it will continue reviewing the merits of legislative action as it refines the proposed approach.
Commenting over the consultation outcome, Evgeny Gokhberg, Founder of Re7 Capital, a UK-based DeFi investment firm said the government's proposed approach to DeFi lending and staking is a positive step for the country’s crypto ecosystem.
"By aligning tax treatment with the actual economic substance of DeFi activity, it provides greater predictability for institutional investors,” Gokhberg said.
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