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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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On this page
  • Lending Rewards
  • Income Tax
  • Capital Gains Tax
  • Principal tokens loaned out
  • CGT disposal on entry and exit?
  • Collateralised Loan examples:
  • REPOS guidance

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  1. TRANSACTION TYPES

Crypto Loans

PreviousCryptoasset derivatives (CFDs, Futures and Margin Trading)NextREPOS

Last updated 3 years ago

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Lending Rewards

Income Tax

The new on lending and staking indicates that lending rewards (including those from lending out your tokens) may not always be income rewards. It is necessary to consider if the nature of the rewards is .

received in exchange for loaning out your tokens will be taxable as miscellaneous income, subject to income tax. The sterling value of the reward tokens at the date of receipt will be the value of the taxable miscellaneous income.

If the taxpayer is a ‘financial trader’ in cryptoassets these rewards may be treated as trading income rather than miscellaneous income.

are subject to capital gains tax and are not treated as miscellaneous income subjected to income tax - see below.

Capital Gains Tax

Capital rewards - CGT charged upon loaning out tokens and upon receipt of reward

The new on lending and staking indicates that lending rewards (including those from lending out your tokens) may not always be income rewards. It is necessary to consider if the nature of the rewards is .

are subject to capital gains tax and are not treated as miscellaneous income subjected to income tax.

A capital gain is realised on the capital reward at the point of loaning out your tokens (based on the estimated present value of the future capital reward). This gain upon entry is then re-assessed upon receipt of the capital reward (usually upon repayment to you of the tokens lent out), based on the value of the reward when received.

Upon lending out the tokens, when the capital reward is subjected to capital gains tax, there is also an acquisition of a ‘Marren v Ingles right' to receive the future capital reward. The acquisition cost of this ‘Marren v Ingles right' is the estimated present value of the future capital reward at the time of lending out the tokens.

There is a disposal of this 'Marren v Ingles right' upon receipt of the capital reward (usually upon repayment to you of the tokens lent out). The disposal proceeds are the sterling market value of the capital reward tokens received. The acquisition cost is the estimate of the future capital reward that was made upon entry. There is a capital gain where the estimation upon entry was too low, or a capital loss where is was too high. It is possible to make an election to carry back a loss from a 'Marren v Ingles right' against the capital gain upon entry.

See our on the tax position of capital reward upon loaning out your tokens and upon receipt of the capital reward.

If the taxpayer is a ‘financial trader’ in cryptoassets these rewards may be treated as trading income rather than capital rewards.

Acquisition cost of reward tokens

The receipt of cryptoasset tokens as a lending reward is an acquisition of those tokens for CGT purposes, regardless of whether it is taxed as an income reward or a capital reward. The sterling market value at the date of receipt is the CGT acquisition cost. The acquisition of tokens is in not a CGT event.

When these tokens received as rewards are later disposed of, there may be a capital gain or capital loss depending on the change in value since acquisition and the application of the share matching rules, dictating which cost is offset against a disposal.

Principal tokens loaned out

CGT disposal on entry and exit?

The new HMRC DeFi guidance confirms that the capital gains tax position of the principal tokens locked away/loaned out needs to be considered:

  • at the time of loaning out your cryptoassets

  • and at the time of receiving the repayment of your cryptoassets

There are no income tax implications for the principal tokens.

Our analysis of the tax position for the lender is split into the following scenarios:

Collateralised Loan examples:

See our collateralised loan examples showing the differing tax positions of the same scenario:

REPOS guidance

See our further guidance on REPOS with cryptoassets:

The capital gains tax treatment depends on whether or not of the tokens locked away/loaned out have 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 or legal advice on this matter.

- income reward - transfer of beneficial ownership

- income reward - NO transfer of beneficial ownership

- capital reward - transfer of beneficial ownership

- capital reward - NO transfer of beneficial ownership

💼
beneficial ownership
tax professional
Where INCOME REWARDS are received for locking tokens up
Beneficial ownership transferred
No beneficial ownership transferred
Where CAPITAL REWARDS are received for locking tokens up
Beneficial ownership transferred
No beneficial ownership transferred
Example 2A
Example 2B
Example 2C
Example 2D
🔄REPOS
💎
HMRC DeFi guidance
capital or income
HMRC DeFi guidance
capital or income
detailed guidance
Income rewards
Capital rewards
Capital rewards