UK Proposes Changes To Treatment Of DeFi Lending
According to a Thursday release, the United Kingdom’s tax office is seeking public input on a proposed modification to the tax classification of DeFi lending and staking.
The proposal from HM Revenue and Customs (HMRC) comes after a call for evidence in 2022. Recent crypto market disasters, notably the bankruptcy of the FTX exchange, have piqued regulators’ interest in the sector, according to the authority.
Global regulators have focused on DeFi, and policymakers have “highlighted specific risks including cyber risks and other technical risks, as well as increased dependencies between traditional and decentralised financial systems and a lack of backstops in periods of market stress,” according to HMRC.
Under existing rules, DeFi transactions can be treated as disposals to be written off as gifts or sales by lenders or liquidity providers even in cases where ownership of the asset doesn’t change.
The proposed changes would ensure DeFi transactions are not treated as a disposals for tax purposes. That would occur only when crypto assets are “economically disposed of in a non-DeFi transaction,” the consultation said.
(With inputs from Shikha Singh)
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