The government of the United Kingdom has begun a consultation in which it seeks ideas on the tax categorization of DeFi lending and staking. This is being done in order to better represent the economic substance that underpins crypto assets and to decrease the administrative burden that is placed on users.
Participants will have the opportunity to voice their opinions on the matter for a period of eight weeks, beginning on April 27, 2023, and ending on June 22, 2023, on whether or not the tax status of decentralized lending and staking should be changed by law.
More details of the development
The government is soliciting feedback from businesses and organizations active in decentralized finance (DeFi), as well as investors, trade associations, colleges, think tanks, and enterprises that provide legal, accounting, and tax advisory services.
The use of crypto assets in DeFi transactions would no longer be subject to a tax penalty if the suggested amendments are implemented after all. A taxable disposition will take place, however, when crypto assets are economically disposed of in a transaction that is not a DeFi.
Alex Bosinceanu, who works for HM Revenue and Customs (HMRC), is in charge of the consultation. He could organize meetings with various stakeholders to discuss their issues with them.
In July 2022, the government published a Call for Evidence about the taxation of decentralized finance, and the consultation that is taking place now is a direct result of that. The submission of responses to the Call for Evidence had to be completed by the 31st of August, 2022, and a compilation of them may be seen in Annex A.
When the consultation has been completed, the government will publish a summary of the responses and then declare the next steps that will be taken. The government has had discussions with many interested parties to determine the most urgent problems and investigate possible remedies.
