UK Government's New Tax Proposal Could Shake The Foundations Of DeFi And CeFi

The U.K. Government's HM Revenue and Customs (HMRC) is inviting public opinion on a proposed amendment to the tax treatment of decentralized finance (DeFi) lending and staking.

Following a call for evidence in 2022, the regulatory body is seeking views from the public on how DeFi transactions should be treated for tax purposes.

The proposed changes would ensure that DeFi transactions are not treated as disposals for tax purposes unless crypto assets are "economically disposed of in a non-DeFi transaction".

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The proposal also includes treating all DeFi returns as revenue in nature and subject to a new miscellaneous income charge to avoid administrative burdens.

The consultation document also notes that the proposed framework will apply to both DeFi and centralized finance (CeFi). The consultation will be open for eight weeks until June 22.

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