DeFi NGNL Tax UK — What HMRC's No Gain/No Loss Regime Means for Lending, Borrowing, and LPs

The UK government has confirmed it will not tax DeFi deposits and withdrawals as disposals. Instead of treating every lending deposit and LP entry as a taxable event, HMRC will adopt a bespoke “No Gain/No Loss” (NGNL) framework — where cost basis carries through and tax is deferred until a genuine economic disposal.

The catch: it hasn’t been legislated yet.

On 27 November 2025, alongside the Autumn Budget, HMRC published its consultation response on the taxation of decentralised finance involving the lending and staking of cryptoassets. Thirty-two formal responses were submitted — from Aave, Binance, Deloitte, CryptoUK, and others — and the overwhelming consensus supported a shift to NGNL. HMRC agreed.

This article explains what the NGNL regime proposes, what it covers, what it excludes, where it stands legislatively, and how ChainTax already handles the transactions it targets.

What the NGNL regime actually proposes

Under the proposed NGNL framework, deposits into and withdrawals from qualifying DeFi arrangements would be treated as having no gain and no loss at the point of transfer. Your cost basis carries through the deposit — you are not treated as disposing of your tokens when you lend them out or provide liquidity.

This replaces an earlier “repo” approach that HMRC explored in its original 2022 consultation. The repo model — borrowed from securities lending — proved too complex for DeFi and received poor industry reception. The NGNL approach is simpler: if you deposit tokens and later withdraw them, the interim steps are tax-neutral.

The consultation response covers three categories of DeFi activity:

1. Single-token lending — depositing tokens into lending protocols (Aave, Compound) and receiving them back
2. Crypto borrowing — posting collateral to borrow tokens, then repaying
3. AMM liquidity pools — providing liquidity to automated market makers (Uniswap, Curve, Balancer) and withdrawing

In each case, the core principle is the same: if the economic substance of your holding hasn’t changed, the movement of tokens shouldn’t trigger a tax charge.

Single-token lending and borrowing

Deposits and withdrawals

Under NGNL, depositing tokens into a lending protocol is not a disposal. Withdrawing them is not an acquisition. Your Section 104 pool remains unchanged throughout the lending period — the tokens simply move in and out of the protocol with their original cost basis intact.

This is exactly how ChainTax already classifies Aave deposits and withdrawals — as TRANSFER (non-taxable). If you’ve ever seen a crypto tax tool treat your Aave deposit as a disposal and create a phantom capital gain, you’ve experienced the problem NGNL is designed to fix. For a full breakdown of current Aave tax treatment, see our guide to Aave lending and borrowing tax.

Interest and yield

Despite industry requests to reclassify staking and lending rewards as capital, HMRC has confirmed that rewards remain income. The consultation states the government is “not currently exploring specific provisions” to change this.

The practical effect: the principal is capital (NGNL treatment), but the yield is miscellaneous income taxed at your marginal rate (20%, 40%, or 45%). This is the same treatment ChainTax applies today — staking rewards from Lido, Rocket Pool, and Aave lending interest are all classified as INCOME. For details on how to report this, see our guides on reporting staking rewards to HMRC and DeFi income vs capital gains.

Borrowing

Taking a crypto loan is not a disposal. The collateral you deposit gets NGNL treatment — your cost basis carries through, and you’re not taxed on the deposit. Repayment of the loan is likewise non-taxable.

The consultation does not fully address interest payments on borrowed crypto or liquidation events, which remain areas where further guidance is expected.

AMM liquidity pools and the reference quantity approach

What “reference quantity” means

For multi-token AMM pools — Uniswap, Curve, Balancer — the regime proposes a reference quantity approach. When you provide liquidity, the regime records the quantity of each token you deposited. When you withdraw, it compares the quantity of each token you receive against that reference.

• If you withdraw more units of a token than you deposited, the excess is treated as a gain
• If you withdraw fewer units, the shortfall is treated as a capital loss
• All other in-and-out movements are handled on an NGNL basis

Crucially, impermanent loss is not crystallised at the point of withdrawal. It only matters when you subsequently dispose of the withdrawn tokens — at which point the adjusted cost basis flows through to your Section 104 pool.

This aligns with how ChainTax already handles LP positions. We classify LP entries and exits as COST_BASIS_CHANGE — the deposited tokens exit your S104 pool and the LP token enters it, with no taxable gain at the point of deposit. For a detailed walkthrough, see our guide to how HMRC taxes Uniswap LP positions.

LP rewards and fee income

The treatment of LP rewards depends on how they accrue:

• Trading fees embedded in the pool share (e.g. Uniswap V2 fees that increase your share of the pool) — these are reflected in the reference quantity difference at withdrawal, and taxed as capital at that point
• Governance token rewards (CRV from Curve gauges, UNI from liquidity mining) — these are income at the fair market value when received, regardless of NGNL

For more on how Curve rewards are taxed, see our guide to Curve Finance and CRV tax.

What the NGNL regime excludes

The consultation response explicitly excludes several categories from the NGNL regime:

• Securities and security tokens — existing securities law applies
• Tokenised real-world assets — property, bonds, and equities on-chain are out of scope
• Proof-of-Stake validation — running a validator node is excluded, though delegated staking (e.g. staking ETH via Lido) is within scope
• Wrapped token conversions — wrapping ETH to WETH or stETH to wstETH is a separate analysis (see our guide to wrapped token tax treatment)
• NFTs and non-fungible positions — not addressed in this consultation

Timeline — where this actually stands

What is legislated

The Cryptoasset Reporting Framework (CARF) is in the Finance Bill 2025-26 and live from 1 January 2026. Under CARF, approximately 50 UK-based crypto exchanges now report your full transaction history directly to HMRC. First data exchange is expected in May 2027. For full details, see our guide to CARF and HMRC crypto reporting.

What is not legislated

The NGNL regime has no commencement date. No draft legislation has been published. The consultation response confirmed the government’s intent to pursue a bespoke NGNL approach, but there is no commitment to a specific Finance Bill or tax year.

What the dry tax problem is and why NGNL solves it

The “dry tax” problem is the single biggest practical issue NGNL addresses. It occurs when depositing crypto into a DeFi protocol is treated as a disposal — triggering Capital Gains Tax on unrealised gains even though you received no GBP and made no economic change.

Under the disposal interpretation, you owe CGT on £15,000 of gains despite holding exactly the same economic position. You’ve changed the form of your holding — ETH to aETH — but not the substance. You haven’t sold anything, received any fiat, or reduced your exposure.

This is why crypto tax tools that treat Aave deposits as disposals produce wildly inflated tax bills. And it’s why HMRC is moving to NGNL — the current position creates “dry” tax charges that don’t reflect real economic activity.

How ChainTax handles this today

ChainTax’s classification engine already handles the transactions NGNL targets in a way that aligns with the proposed regime:

No phantom gains on Aave deposits. No corrupted Section 104 pools from LP entries. Staking rewards correctly classified as income, not capital.

When the NGNL regime is enacted and a commencement date is confirmed, ChainTax will add per-tax-year NGNL support — applying the formal rules from the correct date onwards while preserving existing treatment for prior years.

What DeFi users should do now

1. Do not assume NGNL is law. File your 2024/25 return under current rules. The January 2027 deadline will not wait for legislation.
2. Check how your tax tool classifies DeFi deposits. If it treats Aave deposits or LP entries as disposals, your report likely contains phantom gains — regardless of whether NGNL ever passes.
3. Review your transaction classifications. ChainTax’s free transaction explainer lets you paste any transaction hash and see exactly how it would be classified and priced.
4. Keep records of all DeFi interactions. If NGNL is applied retroactively (not guaranteed), you will need deposit amounts, dates, tokens, and protocols to reconstruct your reference quantities.
5. Watch for the Finance Bill. When draft legislation appears, ChainTax will publish updated guidance and add per-tax-year support.