Crypto Lending Tax UK: Aave, Compound and the HMRC Income vs Capital Question

Supplying USDC to Aave or ETH to Compound is one of the most common DeFi activities for UK holders, and one of the most under-reported on Self Assessment. The treatment is not difficult once you know the rule — but it is unforgiving if you ignore it, because every interest accrual is technically a separate taxable event.

Is supplying to a lending pool a disposal?

This is the question HMRC has not given a single clean answer to. The conservative view — followed by most UK crypto accountants — is yes, because what you receive in return is a different token with different rights (an aToken or cToken that represents a share of the pool rather than the underlying asset). The aggressive view is that aTokens are merely a receipt for the same beneficial ownership, so it is more like a custodial transfer than a disposal.

We default to the conservative view: deposit into Aave is a disposal of the supplied asset at its block-time GBP value, and the aToken acquired starts a fresh Section 104 pool. Withdrawal is the reverse.

The interest is miscellaneous income

Whether your aToken balance grows in quantity (Compound-style) or simply increases in claimable value (Aave v3 rebasing), the increment over time is taxable as miscellaneous income at the GBP value at the moment it accrues. In practice, most UK filers calculate the total interest accrued over the tax year using the wallet balance at year start and year end, then translate it to GBP using period-average prices — HMRC has not pushed back on this approximation when the volume is small.

Borrowing is not a taxable event

Taking a loan against your collateral is not a disposal. You receive tokens but you have an obligation to repay them, so no chargeable gain arises. However: if you are liquidated, the collateral seized to cover the loan is a disposal at the liquidation price, and that often crystallises a loss you can claim.

Repayment in a different asset

If you repay an Aave loan in a different asset to the one you borrowed (for example, borrowed USDC, repay in DAI after swapping), the swap leg is its own disposal. The repayment itself is not.

CARF puts this in scope

From 2026 most centralised DeFi front-ends start filtering through CARF-supervised reporting. Compound and Aave themselves are non-custodial, but interface providers and on-ramps that touch your address are increasingly in scope. Filing your lending interest is the safer side of the line.

CryptoLens classifies aToken and cToken movements as wraps rather than ordinary trades, totals the period interest as income, and presents the result on one SA108/SA100 row.