UK DeFi Tax Guide (2026)

Learn how DeFi is taxed by the HMRC in the UK, including liquidity pools, loans, staking, yield farming & more in our UK DeFi tax guide.

HMRC DeFi tax guidance

HMRC has released guidance on how they plan to tax DeFi, but it's not exactly straightforward, as the guidance states that the nature of the transaction dictates the tax treatment.

If your profits have the nature of capital, it's subject to capital gains tax, but if it has the nature of revenue, it's subject to income tax. So it all comes down to how your protocol works.

To try and simplify this a bit more, a lot of your DeFi trades are going to be seen as disposals.

This includes adding/removing liquidity, staking crypto, and in some instances, the rewards you receive from DeFi protocols, if you receive that reward in one large sum (like if you traded a liquidity pool token that had increased in value).

Meanwhile, returns may be seen as income in some instances. HMRC says this is more likely if:

• The return to be received has been agreed - as opposed to speculative and unknown

• If the return is paid by the borrower/DeFi platform

• If the return is paid periodically throughout the period of lending/staking

So if you're earning new tokens or coins periodically through your DeFi activities, this would have the nature of revenue and be subject to income tax.

In brief, your potential tax liability may look something like this:

Let's take a look at the different transactions and how they're taxed.

How are DeFi loans taxed in the UK?

HMRC has extensive guidance around lending and borrowing crypto through DeFi protocols.

For the lender, when you loan out crypto, you make a disposal which is subject to capital gains tax. If you know the amount of crypto you're receiving in return for the loan, you should include this in your capital gains calculations. If you don't, you can calculate this later.

When you receive your crypto back after the loan, your capital is treated as an acquisition, but any return is not. Your return may be subject to income tax or CGT depending on how you receive it.

For borrowers, a loan is treated as an acquisition, and any loan interest payments are an allowable expense. When they pay back the loan, this will be treated as a disposition, which is subject to capital gains tax.

How is DeFi staking taxed in the UK?

This one is pretty clear-cut because although staking exists within DeFi, it also existed long before, so HMRC has specific guidance.

New tokens from staking are generally miscellaneous income and subject to Income Tax. You’ll also have to pay CGT if you later dispose of the asset.

However, in some protocols, where you stake and receive tokens representing your asset in the staking pool (like Lido), this is more akin to a disposal, and therefore a gain or loss must be calculated when interacting with the protocol.

How is yield farming taxed in the UK?

Speaking broadly, yield farming refers to any crypto assets strategically invested to yield the greatest returns.

You can earn different kinds of yields, for example, tokens, interest, or by being paid the transaction fee.

This means yield farming can refer to a huge number of protocols from a tax perspective, but it'll result in either income (for new tokens) or a capital gain/loss (for disposals).

Refer to the different sections within this guide to identify how each would be treated from a tax perspective.

How is liquidity mining taxed in the UK?

HMRC guidance states that adding and removing liquidity is subject to capital gains tax. The liquidity pool token you receive in return inherits the cost basis of your added capital.

You will pay tax on the rewards earned, but it depends on how you earn them.

If you receive new tokens or coins in return for your capital, you'll likely pay income tax. Whereas if you receive liquidity pool token(s) in return for your capital that increases in value, but that value is not realised until you remove your capital, this would be taxed as a capital gain.

How are crypto derivatives and margin trades taxed in the UK?

HMRC has no specific guidance on crypto derivatives, margin trading, leveraged trading, and other CFDs. However, they have a lot of guidance available on how these are taxed in traditional financial markets.

The advice on traditional finance markets is pretty straightforward; these will normally be seen as individual investments, except in extraordinary circumstances where they may be viewed as trading.

For individual investments, you’re only liable to pay capital gains tax on any profits when your position closes.

Of course, there are some instances where your contract liquidates; in these instances, this would be viewed as a disposal, and you’d similarly be liable to pay capital gains tax on any profits.

It’s important to note that because there is no specific advice on crypto CFD trading, you should still speak to a UK tax advisor for specific guidance on your crypto tax for these transactions.

What about DeFi gas fees?

HMRC has clear guidance on allowable expenses when calculating transaction or gas fees. Transaction fees are an allowable expense, so you can add them to your cost basis. Transfer fees are also an allowable expense in most instances.

How are wrapped tokens taxed in the UK?

In some instances, you’ll need to ‘wrap’ coins before you can deposit them into a smart contract. An example of this is when you want to use BTC on an Ethereum-based platform, you can ‘wrap’ BTC and exchange it for an ERC-20 token of an equivalent value that does work within the platform.

HMRC does not have clear guidance on this just yet. However, as you’re swapping one token for another, it's likely this is a disposal and any profit subject to capital gains tax.

How to calculate HMRC DeFi taxes

Koinly helps UK crypto investors calculate their income, capital gains and losses, and expenses from DeFi investments.

All you need to do is import your crypto transactions from your wallets to Koinly through CSV or API. Once your transactions are imported, Koinly will calculate your crypto taxes for you. All you need to do is head over to the tax reports page, where you’ll see a simple summary of your crypto taxes. Below this, you’ll find a variety of tax reports you can download and submit to HMRC when filing your annual Self Assessment Tax Return.

Learn more about HMRC crypto guidance in our UK crypto tax guide.