Overview of HMRC guidance

A lender/liquidity provider may earn a return/reward from the activity of lending or staking their cryptoassets. Also, an investor may provide their cryptoassets as collateral for taking out a loan.

HMRC's guidance explains that the tax position of the principal tokens locked away needs to be considered, at the time of entering and exiting the yield generating activity when:

o Lending out your cryptoassets

o Staking your cryptoassets

o Adding your cryptoassets to a liquidity pool

o Depositing cryptoassets as collateral for a loan you take out

This is in addition to calculating the tax position upon the ultimate disposal of the tokens (say cashing out for fiat or swapping for another token).

The tax treatment depends on whether or not beneficial ownership of the tokens locked away has been transferred to another party. This is a very complex decision and please see our further guidance on this, but ultimately seek expert help from a tax professional or legal advisor on this matter.

Where an individual is carrying out a financial trade involved in the making of loans/staking; these activities would be subject to the normal trading tax rules, rather than those set out below for cryptoasset investors. However, it is only in exceptional circumstances that such activity would amount to a financial trade.

New aspects to be considered

The new HMRC guidance indicates that cryptoasset investors need to consider the tax treatment of lending and staking activities as set out below:

  • Return/reward generated from the yield generating activity:

    - taxed as income or capital gains?

- taxed at the time of entering activity, when received, or both?

  • Principal tokens locked away when staked/loaned/added as collateral: - capital gains tax disposal upon entry of the yield generating activity? - capital gains tax disposal upon exit from the yield generating activity?


HMRC are clear in their guidance at CRYPTO61610 that it is unlikely that the REPOs legislation applies to cryptoassets.

HMRC state:

'It will be a question of fact whether the tokens being loaned and borrowed or staked (as applicable) can satisfy the definition of a security for the purposes of sections 263A or 263B TCGA 1992. Generally tokens will not be securities for this purpose.'

The REPOS legislation (applying to shares and securities, not cryptoassets) serves to ignore the sale and re-purchase of the shares for capital gains tax purposes.

As HMRC do not expect cryptoassets to qualify as a security and benefit from this generous CGT exemption; they are expecting REPOS involving cryptoassets to realise a capital gain upon disposing of the cryptoassets and there will be a CGT re-acquisition when they are bought back (on the basis it is expected that beneficial ownership of the tokens will transfer to another party). Therefore the tax position is covered by the guidance at Step 3 below.

Suggested approach

We recommend a three step approach to working out the tax position:

1️⃣Is the Reward Income or Capital?2️⃣Is Beneficial Ownership (BO) transferred?3️⃣Consider the Tax Treatment

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