DeFi tax in the UK — liquidity pools, staking and swaps explained
Quick answer: HMRC treats most DeFi tokens like other cryptoassets. Swapping tokens is usually a disposal for Capital Gains Tax. Rewards from staking or liquidity pools are often Income Tax when received. You must keep your own on-chain records — exchange CSVs rarely cover DeFi activity.
DeFi (decentralised finance) lets you swap tokens, lend crypto and earn rewards through software rather than a bank. Each action can create a tax event under UK rules — often several at once.
What counts as DeFi for tax purposes
DeFi covers decentralised exchanges (DEXs), automated market makers, lending protocols, liquidity pools and yield farming. HMRC does not have a separate DeFi tax regime — the same cryptoasset rules apply. What matters is whether you dispose of a token, receive new tokens as income, or both.
Token swaps on a DEX
When you swap ethereum for another token on a decentralised exchange, you dispose of the ethereum for CGT purposes. The sterling value of what you receive minus your pooled cost (and fees) is your gain or loss. The new token starts a new pool at its sterling value on the swap date.
Liquidity pools and LP tokens
Adding crypto to a liquidity pool often means disposing of the tokens you deposit — HMRC may treat this as selling them into the pool. When you withdraw, receiving different tokens or LP tokens back can be further disposals. The exact treatment depends on how the smart contract works; keep transaction-level records and consider professional advice for large or frequent activity.
Yield farming and lending rewards
Interest, governance tokens and other rewards from lending or farming are generally taxable as income at their sterling value when you can access them — similar to staking rewards. That value becomes your acquisition cost for the pool when you later sell.
Bridging and wrapped tokens
Moving assets between blockchains via bridges, or wrapping tokens (such as ETH to WETH), may count as disposals depending on the mechanics. Treat each step as a potential tax event until you confirm otherwise with your records.
Records you need for DeFi
Export transaction history from your wallet (Etherscan, block explorers, DeFi portfolio tools). For each transaction note: date, protocol, tokens in and out, sterling values, gas fees and transaction hash. Download our free CSV template from the templates page to log everything in one place.
Frequently asked questions
Do I pay tax twice on DeFi rewards?+
You may pay Income Tax when rewards are received. If you later sell those tokens at a profit above that value, CGT may apply on the additional gain — similar to staking rewards.
Does HMRC see my DeFi wallet?+
UK exchanges report under CARF from 2026, but on-chain DeFi activity is not automatically reported. You remain legally required to declare taxable gains and income.
Is providing liquidity the same as selling?+
HMRC guidance treats many crypto disposals broadly. Depositing tokens into a pool where you receive a different token or LP token may trigger CGT. Complex cases may need an accountant familiar with crypto.