UK Expands Crypto Tax Rules, Mandates Platforms to Report Transactions by 2026
Key Takeaways
- The UK HMRC has requested all crypto platforms in the country to start reporting users’ domestic and cross-border transactions under the Crypto Asset Reporting Framework (CARF), set to go into effect in 2027
- CARF is a framework designed to exchange cross-border crypto transaction data between global tax authorities to bring greater transparency to the digital asset market. It requires crypto service providers to perform due diligence, verify user identities, and automatically collect and report transaction information annually.
- While CARF’s automated reporting channel does not cover domestic crypto transactions, Britain’s move to expand the ruling is an effort to crack down on tax avoidance. The EU, Canada, South Korea, Japan, and Australia have already rolled out the program.
- The U.K. also made a new tax proposal, called the “no gain, no pain”, that will exempt DeFi lending and liquidity pool users from paying capital gains tax until the underlying crypto is sold.
Starting in 2026, crypto platforms in the United Kingdom will be required to collect all transaction data from resident users as authorities prepare to crack down on tax avoidance. The change is set to expand the scope of the Crypto Asset Reporting Framework (CARF).
This gives crypto users, traders, and investors until the end of next year to get their digital asset affairs in order, after which they will face fines and sanctions.
UK Tax Authority Requires Crypto Platforms to Report Transactions Under CARF
The new ruling will give His Majesty’s Revenue & Customs (HMRC) – Britain’s tax authority – automatic access to both domestic and cross-border crypto data of UK users. This tightens the country’s tax compliance ahead of CARF’s first global information exchange in 2027.
CARF is a framework designed by the Organization for Economic Co-operation and Development (OECD) for exchanging cross-border crypto transaction data between global tax authorities to bring greater transparency to the fast-growing digital asset market. Its rules require crypto asset service providers to perform due diligence, verify user identities, and report detailed transaction information on an annual basis.
The framework primarily focuses on cross-border crypto activity. This means that all transactions that occur entirely within the U.K.’s borders would fall outside the CARF’s automated reporting channels. By expanding it to cover domestic transfers, the government aims to prevent crypto from becoming an “off-CRS” asset class and one that escapes the visibility that is applied to traditional financial accounts under its Common Reporting Standard (CRS).
CARF is already being rolled out in the European Union (EU), Canada, Australia, Japan, and South Korea.
The HMRC said that this unified approach will streamline reporting for crypto companies, while giving tax authorities more complete data to identify non-compliance and assess taxpayer obligations.
Platforms classified as “Reporting Cryptoasset Service Providers” must send users’ transaction information in full detail directly to the HMRC in 2027. That data will allow the regulator to determine the amount of tax crypto investors must pay. The tax authority also noted that it will sanction entities that fail to comply with this reporting order.
UK’s “No Gain, No Pain” Proposal Seeks to Exempt DeFi Users From Capital Gains Tax
On Wednesday, the UK proposed the “no gain, no loss” crypto tax framework that would defer capital gains liabilities for users of decentralized finance (DeFi) lending and liquidity pool platforms until the underlying crypto asset is sold.
Under the new ruling, the HMRC would calculate taxable gains or losses when liquidity tokens are redeemed, based on the number of tokens a user received back compared to the original amount that was initially deposited on the platform.
Currently, when a British crypto user deposits funds into a DeFi protocol, regardless of the purpose, they are subject to a capital gains tax, which can vary between 18% and 32%, depending on the activity.
Stani Kulechov, CEO of the decentralized crypto lending and borrowing protocol Aave, called the “no gains, no pain” proposal a “major win” for DeFi users across the U.K. who want to borrow stablecoins against their crypto collateral.
The HMRC said it is still in discussions with industry stakeholders to assess the merits of this approach and the case for making legislative changes to the rules governing the taxation of crypto asset loans and liquidity pools.
U.S., Spain, Switzerland, and South Korea Adopt Varying Crypto Tax Codes
As the crypto market becomes more integrated into mainstream finance, governments worldwide are updating their tax codes to capture digital asset activity much more clearly and consistently.
The National Tax Service of South Korea announced in October that it will seize crypto assets held in cold wallets and conduct home searches for hardware devices if authorities suspect that taxpayers are hiding digital assets to evade obligations.
Over in Spain, a parliamentary group recently proposed a 47% top tax rate on crypto capital gains. This amendment would shift crypto profits into the country’s general income bracket and set a 30% flat rate for corporate holders.
On Thursday, Switzerland announced that the CARF reporting rules will go into effect on January 1, but the government has postponed the start of automatic crypto information exchange with foreign tax authorities until 2027, as it determines which countries it will share the data with.
Meanwhile, in the United States, a lawmaker introduced the Bitcoin for America Act, which would allow taxpayers to fulfil their federal tax obligations in Bitcoin (BTC), with the proceeds directed to the Strategic Bitcoin Reserve. The proposal would also exempt these coins from capital gains taxes by treating them as neither a gain nor a loss for the taxpayer.
Also Read: What Could Fuel Bitcoin’s Comeback To $100K Amidst Concerning Volatility?
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