The Chartered Institute of Taxation (CIOT) is calling for clearer guidance on the tax treatment of cryptoassets used in decentralised finance (DeFi) transactions.
While CIOT welcomed many of the potential changes put forward in a recent DeFi lending and staking consultation, it said further clarification was needed for a "simpler, clearer and more efficient" regime.
Under current legislation, sales of cryptoassets in DeFi transactions are treated as disposals for tax purposes, usually triggering a capital gains tax (CGT) charge. The potential changes would mean CGT would only apply when cryptoassets are disposed of in a non-DeFi transaction.
However, according to CIOT, the proposed legislation would not cover all possible lending and staking transactions. HMRC should therefore provide more detailed guidance on how the measures will apply to DeFi transactions in practice.
In a letter responding to the consultation, CIOT said:
"The line between crypto trading, investment and even gambling is not always clear - it is for this reason we welcome the definitive categorisation of DeFi rewards.
"If the tax status of crypto asset ownership were enshrined in statute, or at the very least made clear within HMRC guidance, it would give the certainty that investors and traders need to know on which side of the line they are operating."
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