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On Liquidation

Tax position for lender/staker where INCOME REWARDS received and there is a transfer of beneficial ownership

No CGT disposal - collateral locked away

The HMRC guidance on collaterised loans at CRYPTO61640 says there are no CGT consequences upon liquidation; where adding the collateral resulted in a disposal for CGT purposes. HMRC logic for this is the person already disposed of the collateral when it was added.

CGT disposal - redemption/claim tokens or 'right to receive a future quantity of tokens

Although there is no further guidance from HMRC on collaterised loans, there appears to be an argument that this is not the complete picture, as upon liquidation it is logical and fair that there may be a capital loss when the value of the collateral has reduced between adding the collateral and liquidation.
When the collateral was added on entry, there was a CGT disposal of the collateral. At the same time, there was a CGT acquisition of either:
  1. 1.
    redemption/claim tokens provided by the platform; or
  2. 2.
    a ‘right to receive a future quantity of tokens’; or
  3. 3.
    a 'Marren v Ingles right' to receive an unknown/ascertainable quantity of tokens in the future
In a liquidation situation, the redemption tokens/’right’ are probably still held, but are now worthless, as there is nothing left in the collateral pot to be claimed. It is arguable that in this situation a negligible value claim can be made; on the basis that the redemption tokens/’right’ have become worthless upon liquidation. A negligible value claim realises a capital loss equal to the acquisition cost of the redemption tokens/’right’ (at the time the collateral was added), as the disposal proceeds are Nil.
If the redemption tokens/'right' are actually disposed of upon liquidation (ie they are taken from your possession), there is a disposal for CGT purposes of those tokens/'right', rather than a negligible value claim. Where the value of the tokens has fallen since the collateral was added, this is likely to result in a capital loss (subject to the matching rules).
A negligible value claim is a mechanism for realising a capital loss where you still hold the tokens which have become worthless.

Example 2A

Example 2A covers the liquidation of a collateralised loan with an income reward, where there was a transfer of beneficial ownership upon adding the collateral.