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Recap HomeCrypto Tax Guide (Lite)HMRC Cryptoassets Manual
  • A Technical Guide to Cryptocurrency Tax for UK Individuals
    • What are Cryptoassets?
    • Who are Recap?
  • CRYPTOCURRENCY TAX
    • Do I Need to Pay Tax on my Cryptoassets?
    • Which Taxes Apply?
      • Capital Gains Tax (CGT)
      • Income tax
      • VAT
      • Inheritance tax
      • Stamp Duty
    • How Much Tax Will I Pay?
    • New HMRC DeFi Guidance
      • Overview of HMRC guidance
      • 1️⃣Is the Reward Income or Capital?
      • 2️⃣Is Beneficial Ownership (BO) transferred?
      • 3️⃣Consider the Tax Treatment
        • Staker/Lender/Collateral Provider
          • Income Rewards
            • BO transferred
              • ➡️At Point of Entry
              • ⬅️At Point of Exit
              • 💧On Liquidation
              • 💎On Receipt of Income Reward
              • Example 1A
              • Example 2A
            • BO not transferred
              • ➡️At Point of Entry
              • ⬅️At Point of Exit
              • 💧On Liquidation
              • 💎On Receipt of Income Reward
              • Example 1B
              • Example 2B
          • Capital Rewards
            • BO transferred
              • ➡️At Point of Entry
              • ⬅️At Point of Exit
              • 💧On Liquidation
              • 💎On Receipt of Capital Reward
              • Example 1C
              • Example 2C
            • BO not transferred
              • ➡️At Point of Entry
              • ⬅️At Point of Exit
              • 💧On Liquidation
              • 💎On Receipt of Capital Reward
              • Example 1D
              • Example 2D
        • Borrower
    • Investor or Trader?
      • Badges of Trade Limitations
      • HMRC Approach
      • Court Cases involving Financial Traders
    • Capital Gains Tax
      • Calculating the Capital Gains Position
      • Disposal proceeds
      • Disposals to Connected Parties
      • Allowable costs for CGT
        • Exchange fees
        • Forks - affect on allowable costs
      • Capital Loss Claims
    • Income Tax
      • Financial trading income
      • Miscellaneous Income
      • Employment income
    • Fair Market Valuation
  • TRANSACTION TYPES
    • 💷Selling Crypto for Fiat
    • 🔄Trading Crypto to Crypto
    • 🛍️Purchases using Crypto
    • 🎁Gifts
    • 💍Spouse Transfers
    • 🎗️Gifts to Charity, CASCs & Bodies for a National Purpose
    • 🎈Airdrops
    • 🤝Staking
    • 💸Transfers
    • 🍴Forks
    • ⛏️Mining
    • 👛Employment income
      • UK Employer
      • Overseas employer
      • National Minimum Wage (NMW)
    • 🚨Lost & Stolen Crypto
    • 🎲Gambling
    • 💧Liquidity Pools
      • Example - Liquidity pool
    • ⬆️Token Upgrades/Swaps
    • 🔮Cryptoasset derivatives (CFDs, Futures and Margin Trading)
    • 💼Crypto Loans
    • 🔄REPOS
    • 🪞Reflections Rewards
    • 👥Referral Income
    • 💳Cashback
    • 🎨NFTs (Non Fungible Tokens)
    • 🎮NFTs earned playing games
  • Record Keeping
  • Filing Your Self-Assessment
    • How to Register for Self-Assessment
    • How to Fill In the Tax Return
    • Submitting the Tax Return and Paying the Tax
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On this page
  • Overview
  • At point of entry
  • Receipt of loan
  • At point of exit
  • Repayment of loan
  • Reward paid to lender
  • Examples

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  1. CRYPTOCURRENCY TAX
  2. New HMRC DeFi Guidance
  3. Consider the Tax Treatment

Borrower

PreviousExample 2DNextInvestor or Trader?

Last updated 2 years ago

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Overview

The tax position of the person borrowing tokens is more straightforward and is the same regardless of whether or not of the tokens is acquired from another party.

The table below gives a brief overview of the tax position for the borrower of cryptoassets, but should be read in conjunction with the detailed guidance and examples.

Principal loan received

Acquisition of tokens borrowed, for sterling market value at date of receipt

Principal loan repaid with return (reward)

CGT disposal of tokens repaid and return paid to lender, based on sterling market value at date of repayment

Receipt of loan

The receipt of the loan could be in fiat (ie GBP/USD/EUR) or cryptoasset tokens.

For tax purposes the deemed acquisition costs of the cryptoasset tokens received as a loan is the sterling market value (at the date of receipt) of the tokens borrowed.

Repayment of loan

When the loan is repaid, this is treated as a disposal of the cryptoassets borrowed for CGT purposes. The disposal proceeds of are the sterling market value (at the date of repayment) of the tokens repaid.

The acquisition cost is the sterling market value upon receipt of the loan.

There is no tax relief for any lending fees paid to the lender (whether paid to the lender upon repayment of the loan or during the term of the loan).

Examples

At Point of Entry

At Point of Exit

At point of entry

This loan could be put to many different uses. Where it is used to purchase other cryptoassets, there is a disposal of the tokens borrowed for capital gains tax purposes, applying the usual . Generally, where the tokens borrowed have appreciated in value since the loan was received, there will be a capital gain.

At point of exit

Therefore, subject to the , there is a capital gain where there has been an increase in value throughout the term of the loan. Equally, there is a capital loss where the value has decreased.

Reward paid to lender

However, if cryptoassets are used to pay the lending charges, this is a CGT disposal of those cryptoassets. The disposal proceeds are the sterling market value of the tokens at the date they were used to pay the lending fee. The acquisition cost of the tokens is deducted, to arrive at a capital gain or loss.

See our showing the tax position for the borrower of a collateralised loan.

HMRC's shows the CGT computation for a borrower repaying a loan.

3️⃣
➡️
⬅️
💎
Example 2A
Example 6
➡️
⬅️
beneficial ownership
matching rules
matching rules
matched