DeFi lending and staking encompasses a range of activities that reward users who deposit cryptoasset tokens into a pool or lend them to other individuals or platforms for a certain period to earn passive income returns often described as interest.

Stakeholders have expressed concerns that there are circumstances where the current rules for capital gains tax (CGT), when applied to DeFi lending and staking, are inconsistent with the substance of the activity.

HMRC said: ‘We have been told that there are situations where the tax rules treat transactions as disposals where the effective economic ownership of cryptoassets is retained.

‘This can lead to tax outcomes that do not reflect the economic effects, and to a tax liability from a transaction where no gain has been realised in a form which can be used to meet the liability.