Capital Rewards

Where CAPITAL REWARDS are received for locking tokens up

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

Known or ascertainable principal assumed: This summary assumes that upon entry it is known or ascertainable how many principal tokens locked away are to be returned upon exit. The future market value of those tokens upon exit does not need to be known or ascertainable at the point of entry; as they are taxed on the entrance market value.

In the unlikely situation that the number of principal tokens to be returned upon exit are unknown or unascertainable at the point of entry, the tax treatment for the principal is the same as set out for a capital reward as below.

	Transfer of beneficial ownership	No transfer of beneficial ownership
➡️ At Point of Entry
Principal staked/loaned out	CGT disposal of principal tokens at current sterling market value of principal upon entry Acquisition of either actual redemption/claim tokens or a known or ascertainable ‘right to receive future quantity of tokens’ at same value as in disposal	Not a taxable event
Capital reward - unknown and unascertainable	CGT due upon entry, on best estimate of present sterling market value of future reward Acquisition of ‘Marren v Ingles’ right to receive an unascertainable future quantity of tokens; acquisition cost is estimated value of reward used in CGT calcs upon entry	CGT due upon entry, on best estimate of present sterling market value of future reward. Part-disposal of tokens retained which are yielding the reward Acquisition of ‘Marren v Ingles’ right to receive an unascertainable future quantity of tokens; acquisition cost is estimated value of reward used in CGT calcs upon entry
⬅️ At Point of Exit
Principal staked/loaned	CGT disposal of actual redemption/claim tokens or the ‘right to receive future quantity of tokens’ acquired upon entry, for sterling market value upon exit of tokens received in repayment of principal Acquisition of principal tokens staked/lent out at sterling market value upon exit	Not a taxable event
Capital reward - unknown and unascertainable (where reward received upon exit)	CGT disposal of the ‘Marren v Ingles’ right acquired upon entry, for sterling market value upon exit of tokens received as the reward Acquisition cost of reward tokens is market value at date of receipt and subject to CGT when sold in the future	CGT disposal of the ‘Marren v Ingles’ right acquired upon entry, for sterling market value upon exit of tokens received as the reward Acquisition cost of reward tokens is market value at date of receipt and subject to CGT when sold in the future
💧On Liquidation
Liquidation of collateral	CGT disposal of redemption/claim tokens or the ‘right to receive future quantity of tokens’ received when collateral added for NIL disposal proceeds (capital loss realised)	CGT disposal of collateral, for sterling market value of collateral at time of liquidation**
💎On Receipt of Reward
Capital reward - unknown and unascertainable (where reward not received upon exit)	CGT disposal of the ‘Marren v Ingles’ right acquired upon entry, for sterling market value upon exit of tokens received as the reward Acquisition cost of reward tokens is market value at date of receipt and subject to CGT when sold in the future	CGT disposal of the ‘Marren v Ingles’ right acquired upon entry, for sterling market value upon exit of tokens received as the reward Acquisition cost of reward tokens is market value at date of receipt and subject to CGT when sold in the future

** The DeFi lending platform is treated as a nominee for the borrower, so any gain or loss on a disposal of the tokens held as collateral by the DeFi lending platform is deemed to be the gain or loss of the borrower. The tokens disposed of to settle the borrower’s position are treated as disposed of at their market value in sterling.

For detailed guidance on the tax position where the yield generating activity provides capital rewards, see our further guidance, based on whether or not there is a transfer of beneficial ownership: