DeFi NGNL Tax UK: HMRC's No Gain/No Loss Regime

The UK government has published draft Capital Gains Tax rules for certain cryptoasset loans, borrowing arrangements, and liquidity pools. Qualifying movements would use a “No Gain/No Loss” (NGNL) treatment, with tax generally deferred until an economic disposal.

The draft is not law yet. It is intended for Finance Bill 2026-27 and proposes a 6 April 2027 start date.

The policy developed from HMRC’s November 2025 consultation response. On 13 July 2026, HMRC published the policy paper and draft legislation for an eight-week technical consultation.

This article explains what the July 2026 draft proposes, which arrangements may qualify, what still applies today, and where ChainTax’s current treatment differs.

What the NGNL regime actually proposes

Under the draft 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, and 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 draft legislation covers three categories of cryptoasset arrangement:

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, and the tokens simply move in and out of the protocol with their original cost basis intact.

ChainTax currently classifies fully decoded Aave deposits and withdrawals as Transfer and carries Section 104 basis between the underlying and aToken. If either economic leg is missing, the event remains in Needs review. That is a product treatment choice for current periods, not a claim that the draft rules already apply. For a full breakdown, see our guide to Aave lending and borrowing tax.

Interest and yield

The draft measure changes Capital Gains Tax treatment for qualifying capital movements; it does not create a general exemption for staking rewards or lending returns. Existing income-tax rules still need to be applied to those rewards.

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

Under the draft borrowing rules, borrowed qualifying cryptoassets would be acquired at market value, the repayment disposal would use that value, and qualifying collateral would be disregarded for Capital Gains Tax. These rules do not apply before commencement.

Interest payments and liquidation events still require separate analysis; the draft conditions should not be reduced to a blanket “all borrowing is tax-free” rule.

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.

ChainTax does not apply the draft rules early. Under the current CRYPTO61620 position, supported LP additions dispose of the deposited tokens at market value and record the LP token or position acquisition cost. Tax-year-aware NGNL treatment will be needed if the draft is enacted. For a detailed walkthrough of today’s treatment, 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), which 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), which 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 UK Crypto-Asset Reporting Framework (CARF) rules have applied since 1 January 2026. In-scope providers collect prescribed identity and transaction information, with the first reports due to HMRC by 31 May 2027. For full details, see our guide to CARF and HMRC crypto reporting, or the CARF 2027 readiness page if you want to walk through reconciliation now.

What is proposed but not yet enacted

Draft NGNL legislation was published on 13 July 2026. The government says it will be included in Finance Bill 2026-27 and take effect from 6 April 2027. It remains subject to consultation and enactment, and limited retrospective effect is still under consideration.

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 uses a mixed current-period approach and makes the difference visible:

Decoded receipt-token movements preserve a reviewable basis trail. LP entries follow the current disposal treatment rather than applying draft legislation early. Staking rewards remain visible as income and enter the Section 104 pools pool with their acquisition value.

If the NGNL regime is enacted, ChainTax will need per-tax-year support that applies the enacted qualifying conditions from the correct date while preserving prior-year treatment.

What DeFi users should do now

1. Do not treat draft rules as enacted rules. File your 2025/26 return under the law in force unless HMRC confirms a retrospective change.
2. Check the legal basis for every DeFi classification. Aave receipt-token actions and LP entries do not necessarily have the same current-law treatment. Review beneficial ownership, what asset or right was acquired, and whether all economic legs were decoded.
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. A UK crypto tax calculator that reads on-chain history end-to-end is the cheapest way to keep that record auditable.
5. Watch the Finance Bill and technical consultation. The draft can still change before enactment, including the final position on limited retrospective effect.

Sophisticated DeFi users (multi-chain, multi-protocol, often well above 10,000 transactions) can route through our Concierge sync instead. Same engine, same audit trail, run by us on a quote-first basis.