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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

Is Beneficial Ownership (BO) transferred?

PreviousIs the Reward Income or Capital?NextConsider the Tax Treatment

Last updated 2 years ago

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HMRC explains at that considering whether the lender/liquidity provider actually transfers their beneficial ownership of the tokens will require an examination of the contract/terms and conditions. This will need to be done for each type of lending/staking activity that the taxpayer is involved in.

Where the recipient of the tokens has the ability to deal with the tokens received as they want, HMRC says at that this will be a strong indicator that the recipient has acquired the beneficial ownership of those tokens. Conversely, if the recipient is specifically restricted from dealing with the tokens received, HMRC believes this will be a strong indicator that the recipient does not have beneficial ownership of the tokens received.

It will be the responsibility of the taxpayer to decide whether or not beneficial ownership has been transferred, yet this is a complex legal matter with very little in the way of supporting guidance and examples from HMRC. It is recommended that professional, legal and tax advice is sought regarding your specific circumstances.

It is likely to be some time before we find out how much appetite HMRC will have to challenge a taxpayer's decision on whether or not beneficial ownership has been transferred.

There has been a great deal of discussion about when there is a transfer of beneficial ownerships on crypto tax forums such as the BitcoinUK tax channel on Discord, however as the posts are anonymous it is difficult to assess the credibility of the content and the information below is heavily caveated for that reason. It is apparent that the position is very uncertain and complex and needs to be determined for each situation based on the facts, however, the general consensus seems to be:

  • Staking for proof of stake consensus (e.g. Ethereum 2 POS) is not a disposal, as no beneficial ownership transfers to another party. Proof of stake staking should be viewed as akin to mining.

  • Entering most liquidity pools is probably a disposal, as beneficial ownership usually transfers when entering; but it depends on the details of how the protocol works.

  • Providing tokens as collateral is most likely to be a disposal, as beneficial ownership probably does transfer when collateral is added. There would be a disposal if there is clear evidence, such as a statement in the terms and conditions, that the platform/protocol treats the crypto as its own asset and uses that crypto (ie lending it on), probably in the form of a REPO.

It could be argued that you can still retain beneficial ownership of your tokens when they are staked/loaned out. It would seem plausible that beneficial ownership may be retained if you can withdraw the tokens at any time, retain all financial benefits and benefit from price appreciation. However, this is such a complex legal point that professional advice should be sought before arriving at a decison.

-> Step 3

In , we set out the tax position for the yield generating activity, based on whether it is an income or capital reward and depending on whether or not there is a transfer of beneficial ownership.

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Step 3
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