LogoLogo
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
Powered by GitBook
On this page
  • No CGT disposal - collateral locked away
  • CGT disposal - redemption/claim tokens or 'right to receive a future quantity of tokens
  • Example 2A

Was this helpful?

  1. CRYPTOCURRENCY TAX
  2. New HMRC DeFi Guidance
  3. Consider the Tax Treatment
  4. Staker/Lender/Collateral Provider
  5. Income Rewards
  6. BO transferred

On Liquidation

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

PreviousAt Point of ExitNextOn Receipt of Income Reward

Last updated 3 years ago

Was this helpful?

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. redemption/claim tokens provided by the platform; or

  2. a ‘right to receive a future quantity of tokens’; or

  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.

3️⃣
💧
Example 2A