The United Kingdom’s tax agency has updated its rules on how to tax revenue from decentralized finance (DeFi) lending and staking in proof-of-stake networks, the mechanism used to validate cryptocurrency transactions
Her Majesty’s Revenue and Customs (HMRC), the U.K. agency responsible for tax collection, published updated guidance Wednesday (Feb. 2) stating that how a tax return from lending or staking, the process of locking up crypto holdings to obtain rewards or earn interest, is taxed depends on whether it is considered capital or revenue.
The agency said if the profit is realized through the disposal of a capital asset, this would indicate a capital receipt. If the return is paid by the borrower/DeFi lending platform to the lender or liquidity provider, this is a revenue receipt.
Despite the new rules, HMRC said deciding whether a return is capital or revenue is complicated.
“The lending/staking of tokens through decentralized finance (DeFi) is a constantly evolving area, so it is not possible to set out all the circumstances in which a lender/liquidity provider earns a return from their activities and the nature of that return. Instead, some guiding principles are set out,” the update stated.
Nearly one year ago, the HMRC published guidance on how returns from staking are taxed. At the time, taxation of staking depended on whether the activity was a “taxable trade,” the similar the regulations for taxing crypto mining, CoinDesk reported.
This week, India’s finance minister said India’s next budget will include a 30% tax on cryptocurrency.
Read more: Announcing Crypto Trading Tax and Digital Rupee Plans, India Makes Clear Payments Are Out
That rate puts crypto trading income in the country’s highest tax band, according to New Delhi Television.
Finance Minister Nirmala Sitharaman said a central bank digital currency (CBDC) will launch by the end of fiscal year 2022-23.
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