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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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  1. CRYPTOCURRENCY TAX
  2. New HMRC DeFi Guidance
  3. Consider the Tax Treatment
  4. Staker/Lender/Collateral Provider

Income Rewards

Where INCOME REWARDS are received for locking tokens up

PreviousStaker/Lender/Collateral ProviderNextBO transferred

Last updated 2 years ago

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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 .

Transfer of beneficial ownership

No transfer of beneficial ownership

At Point of Entry

Principal staked/loaned out/collateral added

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

At Point of Exit

Principal staked/loaned/collateral removed

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

On Liquidation

Liquidation of collateral

CGT disposal of redemption/claim tokens or the ‘right to receive future quantity of tokens’ which were received when collateral added. NIL disposal proceeds - capital loss via Negligible Value Claim)

CGT disposal of collateral, for sterling market value of collateral at time of liquidation**

On Receipt of Reward

Income (revenue) reward - known or ascertainable

Income reward taxable as miscellaneous income when received; sterling market value at date of receipt

Income reward not subject to CGT on entry, exit or on receipt

Acquisition cost is market value at date of receipt and subject to CGT when sold in the future

Income reward taxable as miscellaneous income when received; sterling market value at date of receipt

Income reward not subject to CGT on entry, exit or on receipt

Acquisition cost 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 income rewards, see our further guidance, based on whether or not there is a transfer of beneficial ownership:

3️⃣
capital reward
BO transferred
BO not transferred