UHY Ross Brooke Chartered Accountants

Tax implications of crypto staking and lending in the DeFi world

crypto tax advice

The possibilities offered by de-fi seems to be virtually endless, but two very popular areas have been crypto staking and lending.

By Chris Davies

These come in various flavours but the underlying common theme is that these typically have offered returns, well above those offered by traditional banks and lenders.

Although often referred to as interest, these returns are not interest for tax purposes. In tax law interest can only accrue on the lending of money and since crypto assets do not qualify as currencies, the returns cannot be regarded as interest. In most cases the returns will be taxed under the heading of “Other income”.

Whilst that may appear relatively straight forward, less straight forward is the capital gains treatment of staking and lending.

Anyone involved in crypto will no doubt know that a disposal, gift or transfer of crypto will constitute a disposal for capital gains tax purposes, but many may be surprised to learn that the action of staking or lending of coins on a platform may be also be a disposal for capital gains tax purposes!

The tax treatment will depend upon who has beneficial ownership of the asset. If, as a result of the staking or lending there has been a transfer of beneficial ownership to the platform, then that is a disposal for capital gains tax. However, if beneficial ownership has been retained by the original owner then there has been no disposal.

If as a result of the lending transaction the individual was issued with a coin provided by the platform then not only may there be a disposal at the time of staking/lending, but when the loan is redeemed and the new coin is returned, it is possible that there could be a disposal for tax purposes of that coin too.

In order to establish the true position it is necessary to look at the terms and conditions of each platform. These are all readily available on the internet.

For example, see Coinbase T&C’s and Binance T&C’s

A careful analysis of each will explain whether any transfer of beneficial ownership has taken place. It would be unwise to make any assumptions that any transfer of beneficial ownership has or has not taken place  without checking the facts, as HMRC do have the ability to charge penalties for careless or deliberate errors on tax returns.

It’s important to note that the tax treatment of crypto staking is complex and we recommended consulting with a crypto tax professional or accountant.

It’s also worth noting that the UK tax authorities have issued guidance on the tax treatment of crypto assets which provides general information on how they would be treated for tax purposes, but it’s important to note that this guidance is not binding and the specific tax treatment will depend on the facts of the case.

PLEASE NOTE: OUR MINIMUM FEE FOR CRYPTO TAX SERVICES IS £1,000 + VAT

How we can help

We have an experienced team of crypto tax advisors familiar with the unique challenges relating to crypto trading and currency who can provide support with:

Meet our Crypto Tax Specialist Advisors​

Phil Kinzett-Evans crypto tax director

Phil Kinzett-Evans

Crypto Tax Director

Joshu Pearce, Tax Manager, Crypto Tax specialist

Joshua Pearce

Senior Crypto Tax Manager

Tom Annat, Senior tax manager, crypto tax specialist

Tom Annat

Senior Crypto Tax Manager

crypto tax specialist UK

Chris Davies

Crypto and AI Director

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