Basic Principles
- The founder of Aave, Stani Kulechov, has praised the new UK tax system for cryptocurrencies and liquidity.
- On July 13, HMRC introduced the “No Gain, No Loss” (NGNL) rule for cryptocurrencies and water lending, which means that depositing protocols like Aave will no longer trigger immediate tax.
- The new tax system is a great step forward for crypto users in the UK as it makes the financial and lending environment easier to tax for everyday users.
On July 13, the main lending method, the founder of Aave, Stani Kulechov, publicly expressed his excitement about the new tax law of the United Kingdom for cryptocurrency lending and liquidity pools (LPs).
“HMRC in the UK is introducing new tax rules related to crypto and water lending,” Kulechov said.
Aave Founder Says UK Crypto Tax Policy Is On The Right Track
The main change is that investing in rental schemes is now considered ‘no gain, no loss’ for tax purposes. This means that users will not owe capital gains tax until they sell, dispose of, or dispose of the property in a profitable manner. The founder of Aave also explained that the collateral backing these deposits is no longer subject to income tax.
Founder Aave Kulechov called the UK regulator’s new development “the right approach” for the crypto sector and said the company’s thinking helped ensure that other options would have been more difficult for taxpayers. “The advantages of HMRC’s approach because 1) it ensures that transactions can affect the results (similar to what we did with the £20,000 stablecoin hold cap) and 2) seeing the tax rules around DeFi means that the space has progressed,” he said in a post on X.
New UK Policy Introduces ‘No Gain, No Loss’ Model for Crypto Lending
This policy is based on discussions with HMRC (His Majesty’s Revenue and Customs) about how tax should be paid. Decentralized Finance (DeFi) transaction involving lending and depositing of crypto assets. The official document introduced a strong support for “no gain, no loss”.
Under previous UK tax laws, investing cryptocurrencies in investment trusts or tax pools could be treated as taxable. This has triggered income tax even if the buyer has not sold the property. This policy has resulted in a “dry” tax, taxes with no real financial benefit. This makes it difficult to follow and explain the subject matter.
The proposed NGNL treatment changes this;
- The new tax policy will see deposits in mutual funds or other forms of income as tax-free.
- Capital gains taxes are deferred until the user makes an “investment”, such as an actual sale or exchange that generates a profit.
- A mortgage loan is usually exempt from capital gains tax at the time of the loan.
The new tax policy is expected to reflect the reality of this business as it applies to DeFi and other decentralized financial institutions. HMRC is making new changes to the existing rules after receiving input from stakeholders, including automated market makers (AMM) and other DeFi activities.
The legal document he said “HMRC published a call for evidence open from 5 July 2022 to 31 August 2022 seeking views on the taxation of cryptoasset loans and fee pools. This was followed by a consultation which ran from 27 April 2023 to 22 June 2023. Since the start of the consultation HMRC has continued to engage with stakeholders in developing the rules. “
According to the official announcement, the trial will begin 6 April 2027.
The policy is expected to boost the adoption of DeFi in the UK By removing the tax barriers that have recently been implemented, it will reduce the legal uncertainty around crypto regulations for users and institutions. This will directly benefit rental platforms like Aave. Kulechov said that “This is the right course of action, especially given the industry’s view that any other course of action would result in a greater burden on taxpayers.“
(From: DeFiLlama)
The global DeFi lending sector is one of the most active sectors in decentralized finance (DeFi). To date, the total amount closed on all loan programs is about $38 billion, according to DeFiLlama. Aave leads the list of lending protocols with more than $13.30 billion in TVL.
Among the legal clarity around the cryptocurrency sector around the world, such as CLARITY ActThe DeFi sector is witnessing growth in adoption, as it boosts investor confidence.
