Autumn Budget 2025: DeFining the UK rules for cryptoasset taxation

In Rachel Reeves’ Autumn Budget 2025, the government has confirmed some important changes in its approach to the taxation of the cryptoasset sector. Expanding on an approach proposed in the 2023 consultation (see our previous article on the 2023 consultation here), it has announced a more comprehensive ‘no-gain/no-loss’ tax treatment for certain categories of decentralised finance transactions. It has also confirmed a significant extension to the UK’s implementation of the Cryptoasset Reporting Framework to capture domestic users.

For investors, protocol developers and intermediaries, these announcements may represent both a welcome simplification of tax liabilities and at the same time a potentially unwelcome increase in reporting obligations.

Context

Decentralised finance (DeFi) refers to an ecosystem of financial applications—such as lending, borrowing, and trading—that operate entirely on blockchain infrastructure. Unlike traditional finance, DeFi relies on protocols (software applications that govern the system without a central administrator) and smart contracts (self-executing code that automatically enforces the terms of an agreement).

In the lead-up to the 2023 consultation on the taxation of cryptoasset lending and liquidity pool transactions, there was significant industry concern that the government’s initial proposal — to shoehorn DeFi into existing ‘repo’ and ‘stock lending’ rules — was unworkable. It was feared that such an approach would be excessively complex for retail users and potentially ill-suited for smart-contract-based transactions.

The government has now confirmed it will abandon the ‘repo’ approach in favour of a bespoke 'no-gain/no-loss' (NGNL) regime. Simultaneously, it has confirmed that it is going ahead with its 'gold-plating' of the global reporting standards set by the Organisation for Economic Co-operation and Development (OECD) to ensure HM Revenue & Customs (HMRC) has full visibility over UK-resident crypto activity.

Domestic reporting: Closing the CARF gap

The Cryptoasset Reporting Framework (CARF) is the new global standard for the automatic exchange of information on cryptoassets. While the UK had already committed to implementing CARF for international exchange, the Budget confirms a critical extension: domestic reporting of UK resident users.

Under the OECD model rules, a UK Reporting Cryptoasset Service Provider (RCASP) would only strictly be required to report on its non-UK users to HMRC (for exchange with foreign authorities). This would have created a data gap where HMRC received no data from UK RCASPs on UK residents using UK platforms. 

The government therefore announced in its Autumn Budget 2024 that it would amend the rules, effective from 1 January 2026, to require UK RCASPs to collect and report transaction data for all customers, including UK residents. The government has confirmed this approach in its Autumn Budget 2025, and draft legislation has been included in new Finance Bill. 

DeFi taxation: The NGNL solution

The headline announcement is the government's solution to the ‘dry tax’ charge in DeFi lending or liquidity pool transactions. Currently, lending or staking tokens in liquidity pools in many cases will be treated as a disposal for capital gains tax (CGT) purposes. This triggers a tax bill even if the user has not withdrawn their asset or realised a profit in fiat currency. The government is proposing a legislative change to treat these transactions as NGNL. At a high level, this is how it is intended to work:

1. Transfer in: When a user (the lender) transfers tokens to another party (the borrower) and/or there is a transfer of cryptoassets through the use of a smart contract, the disposal is disregarded for tax purposes.
2. Holding period: During the loan, the user is treated as still owning the underlying tokens.
3. Transfer out: When the user withdraws the tokens, it is also NGNL.
4. Economic disposal: Tax is only triggered when the tokens are ‘economically disposed of’ (e.g. sold for fiat or exchanged for a fundamentally different asset).

The proposal for the new regime also specifically addresses the taxation of posting cryptoassets as collateral under these arrangements. 

It is worth noting that the new rules — initially being developed in relation to individuals, before the government assesses whether they can be extended to cover corporates – are intended to apply whether or not the arrangements involve an intermediary, meaning that although the focus of the consultation was on DeFi arrangements, they would in principle also apply to centralised finance (CeFi).

Complexity in the detail

While the NGNL principle sounds reasonably simple, the underlying HMRC materials reveal significant complexity, particularly regarding Automated Market Makers (AMMs). An AMM is a type of decentralised exchange protocol that uses algorithms to price assets in a liquidity pool (a crowdsourced reservoir of cryptocurrencies locked in a smart contract), rather than relying on a traditional order book of buyers and sellers.

In an AMM (e.g. Uniswap), a user might deposit a pair of tokens (e.g. ETH and USDC). Due to price fluctuations, they often withdraw a different ratio of tokens than they deposited. For example:

• Transaction: Investor deposits 10 ETH (base cost £10,000) and 30,000 USDC (base cost £30,000) into a pool.
• Withdrawal: When Investor comes to dispose of their rights in the arrangement, the price of ETH has risen. To keep the pool balanced, the smart contract returns 8 ETH and 38,000 USDC.
• Proposed tax calculation (in outline):
  • ETH (fewer returned): Investor gets back 2 fewer ETH than deposited. HMRC suggest this should be viewed as a capital loss of £2,000, being the original base cost of the tokens that were not returned.
  • USDC (more returned): Investor receives 8,000 extra USDC. HMRC suggest this should be viewed as representing  a capital gain of £8,000, equal to the market value of the extra tokens at the time of withdrawal.
  • Result: Investor nets the gain (£8,000) against the loss (£2,000), resulting in a net taxable gain of £6,000.

Comment

‘Dry tax’ relief: The shift to an NGNL model is arguably a victory for the industry and a validation of the consultation process. The previous proposal to use repo rules was roundly criticised as unsuitable for the sector. Under the new approach, however, capital can be deployed into lending protocols without crystallising unwieldy tax charges, thus removing a significant barrier to DeFi and CeFi participation.

The Marren v Ingles headache avoided?: Respondents to the consultation specifically raised concerns about the legal nature of DeFi rights. If a right to receive tokens back is treated as a ‘chose in action’ (a legal right to sue for recovery), there was a concern that this could in some cases in principle trigger complex tax charges under the Marren v Ingles principle, which applies to unascertainable deferred consideration. By adopting a broad NGNL stance, the government appears willing to disapply these complex principles, though is keeping the position under review. The precise legislative drafting will need to be scrutinised to ensure this technical trap is fully disarmed.

A new AMM headache?: While the NGNL rule prevents a tax charge on deposit, the calculation upon withdrawal may in more complex cases remain mathematically intense. Taxpayers will need to calculate ‘what I put in’ vs ‘what I got back’ for every liquidity event to determine if a partial disposal occurred. The expectation is that this will require sophisticated tracking software; spreadsheets will unlikely suffice.

What remains unresolved?: While the NGNL announcement addresses some of the most significant complaints raised in the consultation, there are several areas where clarity is still lacking:

• No retrospectivity: Many consultation respondents urged the government to apply the NGNL rules retrospectively to correct past ‘dry tax’ injustices. The government has stated it "will continue to assess the position”, effectively leaving taxpayers in limbo for historical liabilities.
• The ‘trading’ override: The government clarified that if an individual's crypto activity is so frequent and organised that it constitutes a ‘trade’, the trading rules will take priority over the new NGNL capital gains rules. For high-frequency DeFi users, this means these changes to the rules may simply not be relevant.
• Returns remain ‘income’: Despite industry requests to treat staking rewards as capital (to simplify administration), the government is “not currently exploring specific provisions” to change this. The status quo therefore remains: the principal is capital (NGNL), but the yield is likely miscellaneous income. For high-volume stakers, the mismatch between income tax rates on rewards and capital gains rates on the principal will remain a key consideration.
• Situs and VAT: Broader requests for certainty on the situs of cryptoassets (critical for non-doms) and VAT treatment were acknowledged but effectively parked for future review.

What’s next? 

HMRC has committed to refine the NGNL proposal with further stakeholder input. While the new regime on domestic cryptoasset reporting has been woven into the Finance Bill 2025-26, timing on the proposed NGNL measures remains unclear (though one might reasonably expect draft legislation on the NGNL measures to be published for technical consultation perhaps at some point next year). Until then, taxpayers must continue to live with the current uncertainty. 

If you would like to discuss any of the points raised in this blog post in further detail, please contact the authors or your usual Freshfields contact.