UK to examine taxation of crypto lending and DeFi staking

The UK authorities have invited the public to discuss the possibility of taxing staking and crypto lending within the context of decentralised finance.

UK government is seeking views on the taxation of crypto asset loans and ‘staking’ within the context of Decentralised Finance (DeFi). https://t.co/qjrh2wq3XV

— Wu Blockchain (@WuBlockchain) July 5, 2022

The UK tax authority HMRC intends to assess whether there is potential to lower costs for taxpayers participating in the developing sector. The department is also interested in aligning the tax regime with the fundamental economics of transactions.

HMRC will gather views from investors, professionals and organisations involved in DeFi-related activity. The latter include technology and financial companies, trade associations, educational institutions and think tanks, as well as accounting and tax-law firms.

Following the public consultation, which runs until 31 August, HMRC will publish a report detailing the next steps.

On 5 July FCA appointed Matthew Long, director of the inter-agency National Economic Crime Centre (NECC), as head of the Payments and Digital Assets Department. The official will oversee the e-money and cryptocurrency markets, as well as lead the development of the relevant policy.

Also on the same day the Bank of England in its Financial Stability Report stressed the importance of monitoring the market for digital assets. With its market capitalisation having fallen threefold to $1 trillion, it posed a smaller threat, officials emphasised. The regulator urged strengthening the regulatory and enforcement framework for the sector.

Earlier, in March 2022 the regulator published the framework principles for establishing a regulatory base for cryptocurrencies, with a focus on future risks to financial stability.

In April, the Prudential Regulation Authority increased its budget for the coming financial year to tackle risks associated with digital assets.

In the Treasury, officials said they intend to include regulation of stablecoins, except algorithmic ones, as a payments mechanism in the Financial Services and Markets Bill.

Earlier, the UK Minister for Digital, Culture, Media and Sport Chris Philp spoke of plans to turn the country into a “crypto centre”.

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