CryptoTax UK · Guide
DeFi tax in the UK — HMRC's current position
Decentralised finance introduces some of the most complex crypto tax questions UK investors face. HMRC's DeFi guidance (published 2022, updated 2024) attempts to cover key scenarios, but many grey areas remain. This page summarises the main rules. Educational only — always confirm your specific position with HMRC or a qualified tax adviser.
Estimate my DeFi tax →Liquidity pools — are deposits a disposal?
HMRC's DeFi guidance distinguishes between arrangements where legal ownership of the deposited tokens transfers (a disposal) and those where it does not (not a disposal). In practice, most liquidity pool deposits are treated as disposals — you exchange your tokens for LP tokens, which is an exchange of assets at market value. Receiving LP tokens back on withdrawal is a further disposal of the LP tokens and acquisition of the returned assets.
Yield farming and lending income
Income from liquidity provision (trading fees, yield farming rewards, and lending interest) is typically treated as income subject to Income Tax when received, at the GBP value on the date of receipt. These tokens then have that receipt value as their cost basis when you later dispose of them.
Airdrops
Airdrops received in return for services (such as governance participation or using a protocol) are typically subject to Income Tax. Airdrops received without any action on your part may have a nil cost basis and only trigger CGT on disposal. The distinction matters for how you report them.
Borrowing against crypto
HMRC's current guidance suggests that using crypto as collateral for a loan (without transferring ownership) may not constitute a disposal. However, if the loan arrangement involves transferring beneficial ownership, it may be treated as a disposal. Liquidations almost certainly constitute disposals at the liquidation price.
The evolving nature of DeFi guidance
HMRC's DeFi guidance explicitly acknowledges the complexity and notes that treatment will depend on the specific facts of each arrangement. If you have significant DeFi activity, consider speaking to a UK tax adviser who specialises in crypto — the rules are still developing and the cost of getting it wrong can be significant.
Frequently asked questions
Is wrapping ETH (to wETH) a disposal?
HMRC has not published explicit guidance on wrapping. Most tax practitioners treat wrapping as a disposal — you exchange ETH for wETH, which are technically different tokens, triggering CGT. The gain or loss is likely small if the price hasn't moved, but it should be recorded.
How do I value DeFi income?
Use the GBP value of each reward token on the date you received it. For tokens with no established price on the date of receipt, consider using the first available market price. Keep records of the source (protocol), date, quantity, and GBP value of every reward.
Are gas fees deductible?
Gas fees incurred as part of a disposal are typically deductible as incidental costs of disposal. Gas fees incurred to acquire an asset may be added to its cost basis. Gas fees for transactions that are not disposals (e.g. wallet-to-wallet transfers) are not directly deductible.
Does the calculator handle DeFi?
The CryptoTaxUK calculator handles standard disposals including crypto-to-crypto swaps. Complex DeFi arrangements (multi-asset liquidity pools, leveraged yield strategies, cross-chain bridges) may need manual review. The calculator flags transaction types that may need accountant input.
More UK crypto-tax guides
Educational guidance only. CryptoTax UK is not a regulated tax adviser and the information above does not constitute tax, legal or financial advice. Always confirm your specific position with HMRC or a qualified accountant before filing.