DeFi lending, staking and liquidity pools: how HMRC taxes them

Decentralised finance lets you lend tokens, stake them in pools and earn a return without a bank or exchange in the middle. For UK taxpayers it also creates some of the most complicated tax questions in crypto. Is putting tokens into a protocol a sale? Is the yield interest? What happens when you take them out?

HMRC has published detailed guidance in its Cryptoassets Manual, and in November 2025 the government set out its thinking on possible changes. This guide explains the current position in plain English.

For the basics of UK crypto tax, including the £3,000 allowance and pooling, see UK crypto tax. For what DeFi is, see what is DeFi?

What HMRC means by lending and staking

HMRC notes there’s no statutory or legal meaning of “lending” or “staking” in this context. Its DeFi guidance covers two kinds of transaction:

1. Lending: you transfer control of tokens to a borrower, and get a right to receive an equivalent quantity back in the future.
2. Staking or providing liquidity: you transfer control of tokens to a DeFi lending platform, and the platform transfers control of one or more different tokens to you. The platform can lend your tokens to others, and passes some of their payments back to you as your reward.

This is about DeFi lending and liquidity. Staking to help run a proof-of-stake network is covered in our guide to staking taxes.

The return isn’t “interest”

The return you earn may be called “interest” or a “yield” by the platform, but HMRC says it does not consider it interest for tax purposes. That means tax rules that apply specifically to interest don’t apply. Instead, HMRC asks whether the return is income or capital.

Income or capital? HMRC’s factors

HMRC says the answer depends on how each arrangement is structured, and that DeFi is constantly evolving, so it can’t list every case. It gives factors that point one way or the other:

HMRC frames the core question like this: did you earn the return by providing a service to the borrower or platform, or did it come from the capital growth of an asset you own?

If it’s income: unless you’re trading, it’s taxed as miscellaneous income. The amount is the sterling value of the tokens you receive. Only the return is income; getting your original tokens back is a capital transaction. In some cases the trading and miscellaneous income allowance may apply.

If it’s capital: it falls under Capital Gains Tax instead.

Trading: HMRC expects that individuals will only be trading in DeFi loans in exceptional circumstances. If you are, the profits are taxed as trading income.

Depositing tokens can be a disposal

This is the part that catches people out. HMRC says you need to consider whether you actually transfer beneficial ownership of the tokens:

• If the recipient can deal with the tokens as it wants, that’s a strong sign beneficial ownership has passed.
• If the recipient is specifically restricted from dealing with them, that suggests it hasn’t.

Where beneficial ownership passes, making the loan or stake is a disposal of your tokens at that moment, so you may have a gain or loss to work out even though you haven’t “sold” anything.

Liquidity pools: where you give tokens to a platform and get a different token back, such as a liquidity pool token, HMRC treats it as an exchange of one token for another:

• your disposal proceeds are the sterling market value of the token you receive;
• that same value becomes the cost of the new token;
• if you deposit two or more types of token for one liquidity token, the value is apportioned between them on a just and reasonable basis.

Loans for a fixed quantity: where you lend tokens and the quantity coming back is known, HMRC applies the deferred consideration rules, valuing the tokens due back at their sterling value when the loan is made. Where part of the return will be taxed as income, it’s excluded from the gains calculation to avoid double taxation. If the return is unknown, HMRC treats the right to it as a separate asset, which can lead to a gain or loss when the loan ends.

When you withdraw or the loan ends

When a borrower repays you, or you withdraw from a pool, there are tax consequences again. HMRC explains that what happens depends on how the original deposit was treated. In many cases the repayment is a further disposal, this time of your right to receive tokens back.

Borrowers have their own rules: HMRC treats borrowing tokens as an acquisition, and repaying them, including any return paid, as a disposal.

The possible change: “no gain, no loss”

Stakeholders told HMRC they wanted rules that would make compliance more straightforward and better reflect the economic reality of these transactions. The government consulted on changes, and on 26 November 2025 HMRC published a summary of responses:

• Respondents unanimously welcomed the consultation.
• Around a third raised concerns about rules modelled on “repo” and stock lending, and preferred a no gain, no loss principle.
• HMRC said it has been developing a potential approach where certain disposals are treated as no gain, no loss, which could be extended to automated market makers.
• The government said it will continue to assess the approach and the case for changing the law.
• On rewards, the government said it’s not currently exploring changes to how they’re taxed, but will keep it under review.

In plain terms: a simpler regime may come, but nothing has changed in law yet, and HMRC’s existing guidance still applies.

Records to keep

Because each deposit, reward and withdrawal can have tax consequences, keep for every transaction:

• the date and the tokens involved, in and out;
• the sterling value at the time;
• the platform’s terms, since HMRC says the treatment depends on them;
• any liquidity or receipt tokens you received;
• your section 104 pool costs before and after.

See how to report crypto to HMRC for deadlines and the Self Assessment cryptoasset section.

Risks beyond tax

DeFi platforms carry their own risks, from smart contract bugs to platform failures, and there’s no FSCS protection for cryptoassets. See crypto lending and earn accounts, token approvals and is your crypto insured?