CeFi interest is usually treated as taxable income when the platform holds custody. If the taxpayer keeps control, credited rewards usually count as income; if control ends, treat the event as a disposal for CGT.
How HMRC decides income versus capital
HMRC checks who has beneficial ownership at the moment of receipt. HMRC also checks whether the event causes a disposal for tax.
Who is the beneficial owner?
Ask who can spend or pledge the asset at the moment of receipt. If the platform moves the asset without the taxpayer, the platform likely holds beneficial ownership.
Read the platform custody terms and keep screenshots of those terms. Capture wording that limits withdrawals or gives the platform custody.
When does a disposal occur?
A disposal happens when tokens leave the taxpayer's control or when tokens change identity. Swapping token A for token B counts as a disposal.
Adding to or removing from a liquidity pool often counts as a disposal and a receipt. Record each event with txid, timestamp and GBP value.
The quickest rule to decide tax treatment: if the taxpayer still controls the token, treat the receipt as likely income; if control ends, treat it as a disposal and apply CGT rules.
Decision tree
1) Identify event (interest, swap, LP add/remove).
2) Test beneficial ownership at receipt.
3) If ownership stays, treat as income; if not, treat as disposal.
Record required
txid, wallet, timestamp, GBP value, platform export, basis per token.
Keep raw CSVs, screenshots and conversion source.
A single clear example avoids guesswork when filing. Keep record trails that match the decision steps.
Tax treatment: centralised crypto lending
Centralised lending interest usually counts as taxable income when the platform retains custody. The platform custody terms and withdrawal limits determine HMRC's view.
Most exchange paid interest is income in the year received. For tax year 2024/25, use the taxpayer's marginal rates to calculate tax.
The error most frequent in this point is treating all CeFi receipts as bank interest. Read custody wording and capture screenshots to avoid this error.
Is centralised interest income?
Yes, when the taxpayer lacks full control at receipt or when the platform treats the payment as interest. Platforms that credit balances but restrict withdrawals often create income events.
Report the gross GBP value in the appropriate SA100 income box. Include any withholding the platform shows.
How to report CeFi interest on SA100?
Enter taxable interest under Other UK income or Foreign income depending on the source. Add platform summaries as supporting evidence.
Include GBP totals and any tax already taken off. Attach the reconciliation workbook or note its filename on the return.
To make SA100 and SA109 reporting concrete, use field level examples rather than prose. The examples below map entries to return lines.
- SA100 (Self Assessment): under 'Tailor your return' include Other UK income, description 'Crypto interest from Binance (gross) 01/06/2024', amount £300, attach reconciliation.
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If the platform is foreign and tax was withheld, report gross and include foreign tax credit details in the foreign pages.
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SA109 (Capital Gains): Disposal row example. Date of disposal: 05/07/2024
- Asset: '50 TOKEN (DeFi reward) via Uniswap, txid 0xdef456'
- Proceeds: £350
- Allowable costs: £200 (including gas £12)
- Gain/(Loss): £150
On the SA109 'Disposals summary' table include the disposal date, description, gross proceeds and allowable costs. Carry the net gain into the 'Total taxable gains' box.
Where multiple disposals arise from LP removals, provide a summary line for the tax year with a link to the reconciliation workbook. Keep detailed per transaction evidence for inspection.
These explicit mappings reduce ambiguity when completing online SA100 and SA109 and when HMRC requests supporting files.
Tax treatment: DeFi lending, AMMs and LP events
DeFi outcomes may be income or capital depending on control and whether the transaction causes a disposal. On-chain actions often create disposals even when no fiat changes hands.
On a non-custodial protocol, rewards that arrive in the taxpayer's wallet usually count as income. Converting that reward into another token triggers a disposal and may create a CGT liability.
This works well in theory. In practice, gas costs and timing can change results and alter gains or losses.
A frequent real case: a user received governance tokens then swapped them for ETH. The swap produced a capital gain in the tax year of disposal.
The swap documentation proved decisive in an HMRC enquiry. Keep the txid and conversion proof for every swap.
When is DeFi interest income?
When tokens credited to the taxpayer's wallet leave the issuer's control, HMRC generally treats the receipt as income. Record the GBP value at receipt using a reliable FX source.
Capture the txid and wallet address for each credited reward. Note the provider and timestamp of the FX rate.
Are liquidity pool events taxable disposals?
Yes, adding or removing liquidity often constitutes disposal of the original tokens and receipt of LP tokens. Removal typically triggers calculation of proceeds and allowable costs under CGT rules.
Treat the contribution as a disposal of underlying tokens and an acquisition of LP tokens. Record the disposal proceeds as the GBP value of tokens given up.
A worked AMM example clarifies disposals and 'no gain, no loss' rules. Suppose the taxpayer adds liquidity on 01/06/2024.
Supply 1.0 ETH worth £2,000 and 2,000 DAI worth £2,000. Total contribution equals £4,000. Receive LP tokens for that total.
Treat the contribution as disposal with proceeds £4,000 and acquisition cost of LP tokens £4,000. Initially this gives no gain.
On 01/10/2024 remove liquidity and receive 0.9 ETH (£1,800) and 2,200 DAI (£2,200). Total proceeds equal £4,000 and no gain arises.
If instead the removal gives 0.8 ETH and 1,800 DAI totalling £3,400, the taxpayer has a disposal with proceeds £3,400 and costs £4,000. This produces a £600 capital loss.
For liquidity mining where rewards credit separately, treat on-chain credited rewards as income at their GBP value at receipt. Any later swap of the reward counts as a disposal for CGT.
Apply Section 104 pooling for identical fungible tokens when deciding allowable costs. Observe same day and 30 day matching where swaps to and from exchange wallets affect cost matching.
Record txids, timestamps, GBP valuations and gas costs so HMRC can trace the disposal and acquisition cost chain in the reconciliation workbook.
Use one reconciliation sheet that converts every platform export into GBP by timestamp. Attach raw exports and a short notes column explaining any manual adjustments.
| Criterion |
Centralised lending (CeFi) |
Decentralised lending (DeFi) |
| Typical tax trigger |
Interest credited by exchange, usually income |
Direct rewards may be income; swaps and LP events often disposals |
| Beneficial ownership |
Often held by platform; check custody terms |
Usually retained by user in non custodial wallets |
| Likely tax type |
Income Tax on receipt |
Income or CGT depending on event |
| Typical records |
Platform CSV, statements, custody terms |
On chain txids, wallet exports, pool rules |
| Common HMRC issue |
Missing GBP valuation and withholding details |
Misclassifying swaps or LP events as non taxable |
| Example platforms |
Coinbase, Binance, Kraken |
Aave, Compound, Uniswap, Balancer |
An organised sheet removes guesswork when HMRC asks for detail.
Worked numeric examples comparing income tax and CGT
The examples compare the same economic receipt taxed as income or CGT. Use tax year 2024/25 rates in the worked numbers.
Example 1 shows CeFi interest treated as income taxed at marginal rates. Example 2 shows a DeFi reward swapped and taxed under CGT rules.
Example 1: CeFi interest paid in BTC
A platform credits 0.01 BTC on 01/06/2024. GBP value at receipt equals £300.
The taxpayer is a basic rate taxpayer at 20%. Taxable income equals £300 and tax payable equals £60.
Example 2: DeFi reward received
A reward of 50 TOKEN arrives on 01/06/2024 with GBP value £200. On 05/07/2024 TOKEN is swapped for ETH and proceeds equal £350.
Cost basis equals £200 and capital gain equals £150. CGT at 10% for a basic rate taxpayer equals £15.
Compare £60 income tax versus £15 CGT for similar receipts.
Example 3: loan principal returned
A borrower repays 2 ETH principal and 0.02 ETH interest. The principal return is not a taxable receipt if it represents the return of the same asset.
The interest element is taxed as income at the GBP value when received. Separate basis and income in the spreadsheet.
A fuller numeric comparison shows scale. For example, a basic rate taxpayer receives a DeFi reward worth £4,000 at receipt and has used their Personal Allowance.
If HMRC treats that receipt as income, the taxable amount is £4,000 and tax at 20% equals £800. If treated as capital, the token base cost equals £4,000.
A later swap for £6,000 gives a capital gain of £2,000. For 2024/25, the CGT annual exempt amount is £3,000, so the £2,000 gain sits below the exemption and no CGT is payable.
For a higher rate taxpayer where CGT is charged at 20%, that £2,000 gain would incur £400 CGT. Treating the original receipt as income taxed at 40% on £4,000 would give a £1,600 liability.
Include gas and platform fees in calculations. If £200 of fees are allowable costs, the capital gain falls accordingly.
These mechanics show why classification materially changes outcomes and why GBP valuation date, fees and the annual exempt must be modelled in reconciliations.
Common errors and HMRC traps to avoid
The most common mistakes are treating all crypto interest as bank interest and relying only on platform totals. Misclassification causes underpayment and HMRC enquiries.
The error most frequent in audits is missing on chain evidence for disposals. Keep per transaction proof for swaps and LP events.
Another trap is failing to record GBP values at the exact receipt time. Relying on month end totals causes mismatches and reconciliation failures.
A third mistake is ignoring pooling rules for fungible tokens. Apply Section 104 TCGA pooling when tokens are identical and observe same day and 30 day matching.
Which mistakes trigger HMRC enquiries?
Large unexplained gains or missing supporting txids commonly trigger enquiries. Discrepancies between platform totals and declared figures also attract scrutiny.
Be ready to show the reconciliation workbook and raw exports on request.
How to avoid misreporting?
Reconcile platform CSVs with on chain data each month. Keep raw exports unedited and attach screenshots.
When unsure, flag items and get adviser review before filing.
For complex cases, professional review of the reconciliation spreadsheet and SA109 drafts helps reduce risk.
This guidance does not apply if the taxpayer is not UK tax resident, if the activity amounts to a trading business where trading rules apply, or if the platform withholds tax and issues UK compliant tax documents. In those cases confirm treatment with a specialist adviser and retain the platform documents.
For complex or large value cases consider a professional review of the reconciliation and SA109 entries. A specialist adviser can review unusual pooling and cross border issues.
The plan to report correctly
Begin by exporting raw CSVs and on chain history for the tax year. Normalise all entries to GBP by timestamp and classify each event using the decision tree.
Prepare SA100 and SA109 drafts and keep all supporting files for six years. The legal deadline for online self-assessment is 31 January following the tax year.
Calculate liabilities early to check payment on account implications. For CGT remember the annual exempt amount and apply losses where available.
A quick compliance checklist:
- Export raw CSVs and on chain tx history for the tax year.
- Convert every event to GBP using timestamped rates.
- Classify events as income or disposal with txid evidence.
- Populate SA100 income boxes and SA109 disposals schedule.
- Retain raw exports, screenshots and the reconciliation workbook for six years.
Sample SA109 entry: "05/07/2024. TOKEN swapped for ETH via Uniswap, proceeds £350, allowable costs £200 (includes gas £12), gain £150. See reconciliation tab 'Disposals'."
For authoritative guidance consult the HMRC Cryptoassets Manual. HMRC Cryptoassets Manual
Annex: HMRC and policy updates
Check changes in HMRC manual wording before filing. Also review OECD CARF timelines for information exchange and Finance Act updates.
Key numeric references:
- Income Tax rates used in examples refer to 20% and 40% bands for tax year 2024/25.
- Capital Gains Tax rates shown use 10% and 20% for gains in 2024/25.
- Retain tax records for six years from 31 January after the relevant tax year.
A useful external reference is the HMRC Cryptoassets Manual for worked examples and policy text. HMRC Cryptoassets Manual
Frequently used templates and samples
SA100 guidance sample lines:
Income: Other UK income, crypto interest from exchange: £300 (gross), platform withheld £0, details attached in 'Income reconciliation' sheet.
SA109 disposal sample row:
Disposal date: 05/07/2024
Description: TOKEN swapped for ETH via Uniswap (txid 0xdef456)
Proceeds: £350
Allowable costs: £200 (incl. Gas £12)
Gain: £150
Notes: Reconciliation tab 'Disposals 2024' attached.
Additional resources and evidence visuals
An image of a reconciled spreadsheet proves helpful in practice. Prepare a screenshot showing one token's life cycle: acquisition, interest credited, swap, disposal.
External evidence: OECD materials on automatic exchange and CARF timelines provide context for reporting obligations. The HMRC manual includes worked examples and the statutory basis under TCGA and Income Tax law.
