Tax advisors in the U.K. welcomed proposed rules on decentralized financing (DeFi), lending, and staking. They called it a positive move that provides “certainty for the crypto industry.”

The U.K. tax department, His Majesty’s Revenue and Customs, announced on Thursday that it would be consulting with crypto stakeholders over the next eight-week period about its plan.

Capital gains tax on DeFi lending and staking will only be charged for certain transactions, not all.

In an email to CoinDesk, Dion Seymour said that the U.K. tax services provider Andersen is taking steps to ensure the industry’s safety.

Seymour said, “We are applauding HMRC for the fact that they were the first to set specific rules for DeFi.”

David Lesperance of Lesperance Associates called the HMRC proposal “excellent” in a press release. Lisa Cameron, the chairperson of a Parliamentary cross-party crypto group, expressed her hope that this proposal would be a first step in establishing a comprehensive tax regime.

Crypto Taxes Simplified

In its consultation, the government stated that it had agreed with members of industry who had earlier called for specific regulations for DeFi markets similar to those for stock lending and repo markets.

Ian Taylor, board advisor at industry lobby group CryptoUK told CoinDesk during an interview with CoinDesk that advocates and the crypto industry were requesting new crypto tax laws to be used for DeFi lending, as the existing ones were outdated and triggered “too many” taxable events.

Seymour disagrees with Lesperance, who believes that this would simplify the industry.

Seymour stated that “an opportunity to simplify rules may have been missed.”

He pointed out another option, in his opinion, that was included in HMRC’s initial call for evidence. This proposed to treat the transfer of cryptocurrency for lending and stake as “no loss, no gain” transactions. “The tax liability is deferred until the assets are economically sold,” he said.

According to Seymour, the proposed approach of the authority – which relies on stock lending and repo rules and only excludes some lending and stake activities from capital gains tax – complicates tracking of taxable transactions.

HMRC stated that the “no loss, no gain” option would result in a greater administrative burden and less flexibility for future legislative changes, which are needed to keep up with the new developments of the DeFi industry.

Seymour warned that people could be in danger if they think there won’t be any taxable events in DeFi.

He said that the general public has a limited understanding of how taxes work and is less likely to read HMRC’s guidance. “Education will still be a critical component,” he added.

UK Crypto Tax Guide: 2022

Sandali Handagama is the editor.