DeFi Tax UK 2025/26: How HMRC Treats Lending, LP, Staking

1. Why DeFi tax is the grey area

HMRC published its DeFi guidance in 2022 (CRYPTO61210 onwards), refreshed in 2024. The core principle: tax outcome depends on whether beneficial ownership transfers.

If you deposit ETH into a lending protocol and receive aETH back, are you still the beneficial owner of the underlying ETH? HMRC says no — you’ve given up control, you can’t spend the ETH, the protocol can. So that’s a disposal.

This conflicts with how a lot of US-origin tax tools and even some UK accountants treat DeFi (as a transfer, not a disposal). HMRC’s position is the safe one to adopt unless you’ve got specific advice saying otherwise.

2. Lending (Aave, Compound, Maker)

Depositing a token into Aave, Compound, Maker, or any lending protocol that gives you a wrapped/yield-bearing token in return:

• Deposit: CGT disposal of the underlying. Disposal proceeds = GBP value of the receipt token at deposit.
• Interest accrual: If interest is reflected in the receipt token’s exchange rate (e.g. cToken model), no tax until withdrawal. If interest is paid as separate token transfers (e.g. some Compound v2 markets), each interest payment is income at receipt value.
• Withdrawal: CGT disposal of the receipt token. Proceeds = GBP value of underlying received back. Gain = proceeds − cost basis (which was the deposit-time GBP value).
• Borrowing: Taking out a loan against collateral is NOT a disposal — you still own the collateral. Repayment is also not taxable. Interest paid on the loan is generally not deductible for individuals.

3. Liquidity pools (Uniswap, Curve, Balancer)

LP’ing is the messiest case. You’re depositing two tokens and getting one LP token back. HMRC treats this as TWO disposals.

When you withdraw, the inverse happens — you dispose of the LP token in exchange for getting underlying tokens back (now in different proportions due to impermanent loss). That’s another set of disposals.

Trading feesearned by the pool: HMRC hasn’t given crystal-clear guidance, but most UK accountants treat them as part of the LP token’s appreciation (so they crystallise as capital gain on withdrawal) rather than as income on accrual. If the pool pays out fees as separate token transfers (most modern pools don’t), those are income.

4. Staking

Liquid staking (Lido, Rocket Pool, Coinbase Wrapped)

Liquid staking is treated as a DeFi deposit by HMRC. ETH → stETH is a disposal of ETH; the cost basis of stETH becomes the GBP value at the time of deposit. Rewards accrue as the stETH balance / exchange rate grows. When you redeem stETH back to ETH, that’s another disposal.

Native protocol staking (running a validator)

HMRC’s position is more lenient here — running a validator and locking ETH on the Beacon chain isn’t necessarily a disposal IF you retain beneficial ownership of the locked ETH. Rewards are still income at GBP value on receipt.

Centralised exchange staking (Coinbase, Binance, Kraken)

Treated like native staking — your underlying tokens are still yours, rewards are income on receipt.

5. Yield farming & governance tokens

Yield farms typically combine LP’ing with reward emissions. Tax-wise:

• Step 1 (LP): two disposals as covered in section 3.
• Step 2 (stake LP token): if the LP token is then deposited into a farm contract that gives you another receipt, that’s another disposal.
• Step 3 (rewards): emitted reward tokens (governance tokens, e.g. CRV, BAL, AERO) are income at GBP value on receipt.
• Step 4 (sell rewards): when you eventually sell the reward tokens, that’s a CGT disposal with cost basis = GBP value at receipt.

6. Airdrops & retroactive rewards

HMRC distinguishes airdrops by whether you earned them:

• Earned (e.g. ARB, OP, EIGEN): if you had to do something — bridge, transact, vote — to qualify, the airdrop is income at GBP value on receipt. Recent retroactive airdrops typically fall here.
• Passive (true random or holder snapshot): if you got the airdrop just for holding another token at a snapshot date, HMRC says it’s NOT income but is taxed on disposal (CGT only). Cost basis is normally zero.
• Forks: getting BCH for holding BTC, or any chain split. Not income at receipt; CGT applies on disposal with a cost basis split between the original and new asset.

This is one of the easiest places to get pulled up by HMRC. If in doubt, treat earned-style airdrops as income — it’s the safer position.

7. NFTs & protocol-issued NFTs

NFTs (PFPs, Art Blocks, Pudgy Penguins, etc.) are CGT assets like any other crypto. Buying/selling triggers normal capital gains rules.

Protocol NFTs (Uniswap V3 LP positions, ENS names, Aave aTokens etc.) are receipt tokens — they fall under the DeFi rules in section 3. The NFT-form is irrelevant; what matters is whether beneficial ownership of the underlying transferred.

Airdropped NFTs follow the airdrop rules in section 6.

8. Worked examples

Example 1: Aave deposit + withdraw

Example 2: Lido staking

9. Common mistakes

• Treating DeFi deposits as transfers. US tools default to this — HMRC doesn’t.
• Ignoring impermanent loss as a tax event. Withdrawing from an LP at a different ratio than you deposited triggers fresh disposals — that’s where IL crystallises for tax purposes.
• Not tracking reward token receipts as income. Each governance-token claim is income at GBP value when you claim it (not when it later sells).
• Forgetting gas fees as allowable disposal costs. Gas you paid to deposit into a protocol can be added to the cost basis of the receipt token.
• Using zero cost basis for earned airdrops. If you took income tax on an airdrop at receipt, the GBP value at that moment is your cost basis when you later sell — not zero.