How is DeFi taxed in the UK?
DeFi is the hardest area of UK crypto tax. Depending on the arrangement, moving tokens into a protocol can itself be a disposal for CGT — if beneficial ownership of your tokens passes to the protocol or counterparty — and the return you earn can be taxed as income or as capital depending on how it's structured. HMRC's guidance turns on the contractual reality of each protocol, not its marketing label. Outcomes genuinely differ between protocols that look identical from the app screen, so treat DeFi as a flag for specialist software or professional advice rather than something to eyeball.
Why DeFi is different
Ordinary buys and sells map cleanly onto CGT rules. DeFi doesn't, because the legal substance varies: when you "deposit" into a lending pool, did you lend your tokens (retaining ownership) or transfer them in exchange for a claim (a disposal)? When you receive an LP token, did you swap your assets for a new asset? Each answer changes the tax.
HMRC's lending-and-staking guidance says beneficial ownership is the pivot. If it transfers, you've disposed — potentially crystallising a gain on entry, before you've earned a penny of yield. Receiving a liquidity-pool token in exchange for your deposit generally points toward disposal.
Entry, yield, exit
Three moments to analyse for any protocol:
- Entry: disposal or not? Wrapping, LP deposits, and some staking derivatives (e.g. receiving a liquid staking token) often are
- Yield: income (like interest, taxed on receipt) or capital (baked into a redemption value, taxed on exit)? Depends on whether the return is known/ascertainable when earned
- Exit: usually a disposal of whatever you held (LP token, receipt token) back into the underlying assets — another CGT event
Our honest recommendation
This calculator deliberately does not auto-classify DeFi. If DeFi is a meaningful slice of your activity, use dedicated crypto tax software that models protocol mechanics, and have a UK crypto specialist review anything large. Guessing here is how expensive mistakes happen — in both directions.
Run your own numbers — free
Our calculator applies these rules to your transactions and shows the full working for every disposal — same-day, 30-day and Section 104 matching, per tax year.
Open the calculator →Frequently asked questions
Is wrapping ETH to WETH a disposal?
It's debated. Arguments exist both ways (same asset in substance vs. exchange of one token for another), and treatment may differ by context. This is exactly the kind of point to settle with an adviser and then apply consistently.
Are liquidity pool rewards income?
Often the periodic reward element (extra tokens) resembles income, while the change in value of your pool share is capital — but the split depends on the protocol's mechanics.
Can I just ignore small DeFi experiments?
Small amounts may produce trivial tax, but the events still exist. Keep the records now; deciding materiality later is much easier than reconstructing history.
Sources & methodology
Tool v0.2.0 · sources last checked 6 July 2026. This guide is general information, not tax or financial advice — verify your position with a qualified professional before filing.