As part of the UK Budget measures on 26 November 2025, two announcements were made by the UK Government concerning, respectively, the tax reporting of cryptoassets and the taxation of decentralised finance (“DeFi”) involving the lending and staking of cryptoassets.

While each of the two announcements deals with a different aspect of the taxation of cryptoassets in the UK, together they neatly illustrate the challenges of tax policy when it comes to digital assets. On the one hand, how can cryptoasset data best be gathered by His Majesty’s Revenue & Customs (“HMRC”) to tackle tax evasion? And, on the other, how can the UK Government best ensure the UK’s tax code encourages innovation in the digital economy and taxes cryptoasset transactions in accordance with their economic substance?

UK Residents now within the scope of the CARF

In the UK Budget, the UK Government has confirmed that UK reporting Cryptoasset Service Providers (termed “RCASPs” in the UK Budget announcement) will be required to collect and report information to HMRC relating to their UK resident customers under the Cryptoasset Reporting Framework (“CARF”) as developed by the Organisation for Economic Co-operation and Development.

Proposed legislation in this respect has been included in Part 8 of the Finance (No.2) Bill 2026. These changes will take effect from the date of the Royal Assent of that Bill, anticipated to be in the spring of 2026. The proposed legislation mandates information reporting from cryptoasset users who are resident in the UK, or have controlling persons who are resident in the UK. These requirements are in addition to information reporting by non-UK tax resident customers of UK RCASPs, which is already required under the CARF.  

HMRC have stated the combination of existing reporting under the CARF and the change in the UK legislation announced in the Budget achieve its policy objective of obtaining CARF data on all UK taxpayers using both UK based and non-UK based RCASPs. We considered HMRC’s implementation of the CARF in a previous edition of Brass Tax here.

HMRC’s intention is to receive standardised data regarding cryptoassets usage on an annual basis. While not specified in the UK Government’s announcement in the Budget, it is expected that in-scope UK RCASPs will be required to provide information covering the period 1 January 2026 to 31 December 2026 to HMRC in 2027.

DeFi

Also included in the UK Budget publications was the UK Government’s summary of stakeholder responses to an earlier public consultation in 2022 relating to the taxation of DeFi involving the lending and staking of cryptoassets.  We reported on that 2022 consultation in a previous edition of Brass Tax here.

Under the 2022 consultation, HMRC considered three possible options to ensure that the taxation of DeFi lending and staking corresponds with the economic reality of a cryptoasset transaction whilst not causing market distortions by incentivising participants to favour one activity or asset over another. By way of recap, the three options which were considered by HMRC in the 2022 consultation were, in summary:

• Option 1: Bringing DeFi lending and staking within the UK’s “repo and stock lending rules” by defining cryptoassets as “securities”;
• Option 2: Creating separate rules for DeFi lending and staking, similar to the UK’s current “repo and stock lending rules”; and
• Option 3: Applying a “no gain no loss” treatment to DeFi lending and staking so that any tax liability would be deferred until the cryptoassets are economically disposed of.

A further consultation, ending in June 2023, considered provisions that would, subject to certain conditions, disregard (for capital gains tax purposes) any disposal of beneficial ownership that may occur during cryptoasset loans or liquidity pool arrangements. Any capital gain would, instead, be taxed when the cryptoasset was subject to an “economic disposal”.

On 28 November 2025, HMRC published “The taxation of decentralised finance (DeFi) involving the lending and staking of cryptoassets — Summary of responses” (the “2025 Summary of Responses”).  The 2025 Summary of Responses does not set out a final decision of the Government on the taxation of DeFi lending and staking transactions. The most likely course of legislative travel does, however, appear to be treating certain cryptoasset arrangements where individuals enter into lending and staking DeFi arrangements as being effected at a “no gain, no loss”, thereby removing a potential tax liability which would arise under current tax rules when a cryptoasset investment is made.

The approach being considered by HMRC would define cryptoassets as: “a digital representation of value that relies on a cryptographically secured distributed ledger or a similar technology to validate and secure transactions”. That definition would exclude securities (covered by existing tax rules) and tokenised assets, which provides the holder with rights in respect of another asset (such as real-world assets).

The proposal of the UK Government is that new legislation would cover a number of specific cryptoasset arrangements. These include, for example, single token arrangements, focused on the approach that where no economic disposal of cryptoassets occurs, that transaction would take place on a “no gain no loss” basis for UK tax purposes. Notwithstanding the process of an individual lending the tokens through a cryptoasset platform and receiving equivalent tokens back, only a sale of the tokens which crystallises the gain (or realises a loss) would be within the scope of the taxing measure, reflecting the individual’s overall economic gain or loss from the arrangements.

Additional areas where HMRC is considering specific legislative provisions are cryptoasset borrowing arrangements (so that an individual’s borrowing of cryptoassets and any provision of cryptoassets as collateral would be disregarded for certain tax purposes) and provisions dealing with multi-token arrangements that are operating as automated market makers (“AMMs”). In this latter situation, existing tax rules can mean that arrangements with AMMs can give rise to a significant number of taxable gains and losses without an economic disposal of assets by the user. Under the UK Government’s proposal, when an individual transfers invested cryptoassets into an AMM in exchange for rights in that arrangement, the cryptoasset tokens would be treated as being disposed of on a “no gain no loss” basis. Then, broadly, when the individual disposes of their rights in the AMM arrangement, the UK Government’s proposal would be that taxation should operate based on whether the number of tokens the individual receives back is greater, or fewer, than the number that were contributed, thereby ensuring an economic gain or loss is taken into account for tax purposes.

The 2025 Summary of Reponses noted that HMRC is continuing to engage with stakeholders to refine the policy approaches set out above. The announcement in the UK Budget did not specify a timescale for any final legislative provisions, but we will cover any further developments in a future edition of Brass Tax.