The UK proposes to introduce a "no profit, no tax" tax rule for DeFi

According to CoinDesk, the UK government is developing a new tax framework that may benefit DeFi users.

Proposals released this week indicate that HM Revenue and Customs supports the principle of "no tax liability without gain or loss" for cryptocurrency lending and liquidity pool arrangements. Under the current system, when DeFi users deposit funds into a protocol, even if it's just for profit or as collateral for a loan, it may trigger capital gains tax. The new initiative will postpone the tax payment until an economically meaningful disposal of the asset actually occurs. This means that users who deposit cryptocurrency into lending protocols or provide tokens to automated market makers will no longer need to pay taxes at the time of deposit; they will only be required to pay taxes when they eventually sell or trade the assets and realize gains or losses.

The proposal aims to align tax rules with the actual operations of DeFi, thereby reducing administrative burdens and avoiding unreasonable tax outcomes. The new principle also applies to complex multi-token arrangements; if the tokens withdrawn by the user exceed the amount deposited, the profit portion will be taxed; if it is less than the amount deposited, it will be considered a loss. However, this model has not yet been finalized, and the government is still consulting with professionals and DeFi developers. Although HM Revenue and Customs has not established a legislative timetable, it has stated that it will continue to engage with the industry to assess the necessity of legislation.