Regulator updates rules on DeFi lending, staking
The UK tax agency has updated its rules on how to tax income from decentralized finance (DeFi) lending and staking in proof-of-stake networks, the mechanism used to validate cryptocurrency transactions. cryptocurrency
Her Majesty’s Revenue and Customs (HMRC), the UK agency responsible for collecting taxes, issued updated guidance on Wednesday February 2 stating that how a return of income from a loan or staking, the process locking up crypto assets to obtain rewards or earn interest, is taxed depending on whether it is capital or income.
The agency said that if the profit is realized through the disposal of a fixed asset, it would indicate a capital inflow. If the return is paid by the borrower/DeFi lending platform to the lender or liquidity provider, it is a cash-out.
Despite the new rules, HMRC said it was complicated to decide whether a return is capital or income.
“Token lending/staking via decentralized finance (DeFi) is an ever-evolving field, so it is not possible to outline all of the circumstances in which a lender/liquidity provider derives a return from its activities and the nature of that performance. Instead, certain guiding principles are set out,” the update reads.
Almost a year ago, HMRC issued guidance on how income from staking is taxed. At the time, taxation of staking depended on whether the activity was a “taxable trade,” similar to regulations around taxation of crypto mining, CoinDesk reported.
This week, India’s finance minister said India’s upcoming budget will include a 30% tax on cryptocurrency.
Read more: Announcing Crypto Trading Tax and Digital Rupee Plans, India Clearly Makes Payments Out
This rate puts income from crypto trading in the highest tax bracket in the country, according to New Delhi Television.
Finance Minister Nirmala Sitharaman has said that a central bank digital currency (CBDC) will be launched by the end of the 2022-23 financial year.