Frequently Asked Questions

Question 1

Is DeFi taxable in the UK?

Accepted Answer

Yes. DeFi activities can trigger both Capital Gains Tax and Income Tax. Swapping tokens, providing liquidity, and claiming rewards are all potentially taxable events. The exact treatment depends on the specific activity and your circumstances.

Question 2

How are liquidity pool rewards taxed?

Accepted Answer

LP rewards are complex. Adding/removing liquidity may trigger CGT. Trading fees earned could be income or capital gains depending on frequency. Impermanent loss is generally not an allowable loss. Professional advice is strongly recommended.

Question 3

What about yield farming and staking rewards?

Accepted Answer

Staking rewards are typically treated as income when received, valued at market rate. You then have a cost basis for future CGT calculations when you sell. Yield farming follows similar principles but with additional complexity around token swaps.

Question 4

How do I calculate tax on wrapped tokens and bridges?

Accepted Answer

HMRC hasn't issued specific guidance on wrapped tokens or bridges. Some argue wrapping is a disposal; others treat it as a non-taxable conversion. Bridges may create taxable events. Document everything and seek specialist advice.

Question 5

Why do I need a DeFi specialist accountant?

Accepted Answer

DeFi tax is among the most complex in crypto. Standard accountants rarely understand liquidity pools, impermanent loss, or cross-chain transactions. A specialist can identify legitimate tax-saving opportunities while ensuring HMRC compliance.

DeFi Tax Specialists

Wright Vigar

Crunch Accounting

Hodge Bakshi

Myna L2