- HMRC now considers the act of staking, lending, and liquidity providing as a taxable event
- Engaging in such activity will now be treated the same way as selling the coins
- The new rules have been criticized by UK crypto bodies
The UK’s tax authority, Her Majesty’s Revenue and Customs (HMRC), yesterday updated its guidance on cryptocurrency, and it has not gone down well. The update concerns the acts of lending, staking and liquidity providing, with HMRC now classing such activities as sales, with the resultant capital gains/losses now needing to be recorded. This is despite the coins not actually leaving the holder’s possession. The update has met with resistance from CryptoUK who claimed that the rule change further muddies the waters with regards to crypto tax in the country and adds more burdens to taxpayers.
HMRC Decides Lending is Like Selling
To date, the only attention HMRC has paid to lending, staking and liquidity providing is to class the rewards gained from such activity as income, and no one expected them to look further into this. However, HMRC has now decided that in locking up coins for the purposes of lending, staking, or providing liquidity the user is essentially leaving their cryptocurrencies (and, yes Chet, their NFTs) in the hands of a third-party, thus equating to a taxable event.
In practice, this means that British cryptocurrency users will now have to record the value of their holdings at the time they enact the lending/staking/LP smart contract and calculate the gain/loss on the sale. Any rewards from such practices are to be recorded as income and the moment the coins are unstaked they are considered as being re-purchased.
New Rules Add “Compliance Confusion”
Ian Taylor, Executive Director of CryptoUK, the trade body representing the digital asset sector in the UK, criticized the development from HMRC, stating that the new ruling was “inconsistent with the approach currently being adopted by Government and other regulatory bodies in the UK” and warned that it “creates friction for crypto investors, adds undue reporting requirements for the consumer, and creates tax compliance confusion.”
Staking has also caused consternation in the U.S. – in August last year four congressmen wrote to IRS Commissioner Charles Rettig asking for clarification on taxation rules surrounding the practice.
