The UK crypto tax rules are about to lose their most complained-about feature. Draft legislation published on 13 July 2026 for inclusion in Finance Bill 2026-27 would apply a no-gain-no-loss treatment to crypto asset loans and liquidity pool transactions, rolling any gain into the base cost of the asset you receive back rather than crystallising a chargeable disposal the moment you deposit. Certain stablecoins would become exempt assets, so moving in and out of them stops being a capital gains event at all. The technical consultation closes on 7 September 2026.
If you are a US citizen or Green Card holder living in Britain, read the second half of this article before you get comfortable. Every one of these changes is a change to UK law. The Internal Revenue Service is not a party to it. A reform that removes a UK disposal does not remove the corresponding US disposal, and the practical effect for a dual filer is that the two systems are about to diverge much further than they already have — which means more US tax on gains the UK has stopped taxing, and fewer UK credits to set against it.
What is broken in the current UK crypto tax rules
HMRC treats most crypto assets as chargeable assets for capital gains tax. Disposal is a wide concept: selling for sterling, swapping one token for another, spending it, or gifting it all count. That framework works tolerably for someone who buys Bitcoin and holds it. It falls apart in decentralised finance, because the mechanics of lending and liquidity provision involve transferring beneficial ownership of a token in exchange for something else.
Under HMRC's existing published position, depositing a token into a lending protocol or a liquidity pool is capable of being a disposal in itself. That produces a taxable gain on an transaction where no money has been received and nothing has been cashed out. Users then face a further disposal when they withdraw. The result is a compliance burden wildly out of proportion to the economics, and in volatile markets a genuine cash-flow problem: a tax bill on a paper gain, payable in sterling, arising from a transaction that generated no sterling.
The no-gain-no-loss treatment for loans and liquidity pools
The draft legislation replaces that with a rollover. Where a crypto asset is transferred as part of a qualifying lending arrangement or into a liquidity pool, the transaction is treated as giving rise to neither a gain nor a loss. Instead, the base cost of the asset given up carries across into the asset received — typically the lending receipt token or the liquidity pool position. The tax point moves to the eventual real disposal.
This is the same mechanism used elsewhere in UK capital gains legislation for share reorganisations and certain transfers, and it is the right answer. It aligns the tax charge with the economics: you pay when you actually realise value, not when you move a position around inside a protocol. It also removes an enormous amount of record-keeping, because the intermediate steps stop needing to be valued at all.
- Depositing into a qualifying loan or liquidity pool: no gain, no loss on the transfer.
- Base cost of the asset given up carries into the asset received back.
- The chargeable gain crystallises on the eventual genuine disposal instead.
- Removes the cash-flow problem of tax on a paper gain with no sterling received.
- Substantially cuts the valuation and record-keeping burden on intermediate steps.
Stablecoins become exempt assets
The second change is arguably larger in day-to-day terms. The government proposes to treat certain stablecoins as exempt assets, removing the need to treat disposals of them as chargeable events for capital gains tax. Anyone who has tried to prepare a UK crypto computation knows why this matters: a trader who routes every position through a dollar stablecoin generates two disposals per round trip, and a year of ordinary activity can produce thousands of individually reportable events for pennies of actual gain.
Exempting them collapses that noise. It also reflects reality — a token designed to hold a constant value against a fiat currency is not an investment asset in any meaningful sense, and taxing movements in and out of it as capital transactions was always an artefact of the framework rather than a policy choice. The government has separately asked whether interest-like returns on crypto should be treated the same way as actual interest, which points towards income rather than capital treatment for yield.
What has not changed
The reform is narrower than the commentary suggests. Ordinary buying and selling of crypto remains within capital gains tax at the 2026/27 rates of 18% for basic-rate taxpayers and 24% for higher and additional-rate taxpayers, with an annual exempt amount of just £3,000. Swapping one non-stablecoin token for another remains a disposal. Spending crypto on goods remains a disposal. Mining, staking and airdrop receipts continue to be treated as income in most cases, taxed at your marginal rate when received, with a separate capital gains computation later on disposal.
The £3,000 annual exempt amount deserves emphasis because it has been cut so far — it was £12,300 as recently as 2022/23. For an active portfolio it is now essentially a rounding error, which means almost any realised crypto gain of substance is taxable. You can size the UK position with our UK crypto tax calculator and the rates are set out on GOV.UK.
Timing: what to do before the rules change
The draft legislation is in technical consultation until 7 September 2026 and would take effect for Finance Bill 2026-27. That means the current, harsher treatment still governs today's transactions, and the reform is not law until it is enacted. Two practical points follow. First, do not assume a deposit into a lending protocol made now is protected — on the present position it may well be a disposal, and it needs to be recorded as one until the legislation is in force.
Second, the change creates a genuine deferral opportunity for anyone sitting on unrealised losses in DeFi positions. Under the current rules, a loss crystallised on a pool deposit is an allowable loss available against other gains. Under the new no-gain-no-loss rules it would not be — the loss rolls into base cost instead. If you have real losses in protocol positions and gains elsewhere to shelter, the window to crystallise them under the old treatment is closing. That is a point to model properly rather than act on from an article.
Why none of this helps your US return
Now the part that matters for a dual filer. The United States taxes its citizens on worldwide income wherever they live, and it has its own settled treatment of crypto. The IRS treats digital assets as property, so a token-for-token swap is a taxable exchange, and there is no US equivalent of the rollover the UK is introducing for loans and liquidity pools. There is also no US exemption for stablecoins: a disposal of a dollar stablecoin is a disposal, even if the gain is trivially small.
The consequence is a widening gap. A US citizen in London who deposits into a liquidity pool after the reform has no UK disposal and a full US disposal. The gain is taxable in the US at up to 20% plus the 3.8% net investment income tax if long-term, or at ordinary rates up to 37% if short-term — and because the UK has charged nothing on that transaction, there is no UK tax to claim as a foreign tax credit. The reform that helps your British colleagues leaves you paying US tax with no offset at all.
The mismatch runs in both directions
It is worth being precise, because the asymmetry is not uniform. Where the UK taxes a gain and the US taxes the same gain in the same year, the foreign tax credit generally works and the higher of the two rates broadly prevails. Where the UK defers and the US charges, you pay US tax now with no credit. Where the UK charges and the US defers — rarer, but it happens with timing differences — you may have UK tax and no US liability to credit it against, and the credit carries forward for ten years hoping to find matching income.
The reform pushes more transactions into the middle category, which is the worst one. Every DeFi position that the UK stops taxing is a position where your US tax becomes an unrelieved cost rather than a credited one. We set out the wider framework in crypto tax for Americans in the UK, and the IRS digital assets guidance sets out the US treatment directly.
Reporting: the obligations that survive the reform
A UK simplification does not reduce US reporting, and in some respects the two are moving in opposite directions. US persons report digital asset transactions on Form 8949 and Schedule D, with the digital asset question on the face of Form 1040. Where crypto is held through a non-US exchange or custodian, the account itself may be a foreign financial account for FBAR purposes and a specified foreign financial asset for Form 8938, depending on how it is held.
The international reporting net is also tightening independently of any of this. The OECD Cryptoasset Reporting Framework brings crypto service providers into automatic exchange of information, and the US is phasing in broker reporting on Form 1099-DA. The direction of travel is that both revenue authorities will increasingly receive your transaction data from the platform before you file. That makes the historic strategy of hoping the complexity goes unnoticed considerably less viable than it was.
Record-keeping that works for both systems
The practical answer for a dual filer is to keep one dataset that can produce two different computations, rather than trying to run a single set of numbers through both regimes. That means capturing, for every transaction, the date and time, the assets in and out, the sterling value, the dollar value, the gas or protocol fees, and the wallet or venue. Once the UK reform is in force, the same dataset has to support a UK computation that ignores pool deposits and a US computation that treats them as exchanges.
Currency is the detail that trips people up. UK gains are computed in sterling and US gains in dollars, using the rate at each acquisition and each disposal. A position can therefore show a gain in one currency and a loss in the other on identical economics — a genuinely counterintuitive outcome that arises constantly with dollar-denominated crypto held by a sterling-based investor. Neither authority accepts a computation done in the other's currency.
- Record date, time, assets in and out, and both sterling and dollar values for every transaction.
- Keep fees separately — deductible treatment differs between the two systems.
- Expect to run two computations from one dataset once the UK rollover is in force.
- Translate at the rate on each acquisition and disposal date, not a year-average.
- Do not assume a UK loss is a US loss, or vice versa — the currency alone can flip the sign.
How this fits the wider UK direction of travel
The crypto measures arrive alongside a broad Finance Bill 2026-27 package that includes a securities transfer tax to replace stamp duty and stamp duty reserve tax on UK shares, reforms to HMRC's information and inspection powers, and a statutory duty on taxpayers to correct known inaccuracies. Read together, the pattern is a tax system being modernised for asset classes it was not designed for, with a firmer compliance perimeter around it.
The same period has seen shelters narrowed elsewhere — dividend rates up from April 2026, capital gains rates climbing, and the cash ISA limit falling to £12,000 from April 2027, which we covered in the cash ISA limit cut. For a US person in the UK the crypto reform is unusual in that a UK relief actively makes your overall position worse. That is worth understanding before you restructure anything in reliance on it.
How TaxStone handles crypto for dual filers
At TaxStone we build the transaction history once and then run it twice — a UK computation on UK rules and a US computation on US rules — rather than preparing one and adjusting it. That is the only way to see where the two diverge, and after this reform the divergence is the whole story. We then look at the credit position across years, because a mismatch that looks manageable in one tax year often is not once carryforwards are projected.
If you hold crypto, live in the UK and file a US return, the reform is a good moment to get the position properly reconciled rather than discovered at filing. Contact us or book a free consultation and we will work through your actual history across both regimes: /get-started.
The short version
Draft Finance Bill 2026-27 legislation published on 13 July 2026 would apply no-gain-no-loss treatment to crypto asset loans and liquidity pool transfers, rolling base cost into the asset received rather than triggering a disposal, and would make certain stablecoins exempt assets for capital gains tax. The technical consultation closes on 7 September 2026. Ordinary buying, selling and token-to-token swapping stay within capital gains tax at 18% or 24% with a £3,000 annual exempt amount, and staking and mining receipts remain income.
For US citizens and Green Card holders in the UK, the reform is not good news. The IRS treats digital assets as property with no rollover for lending or liquidity provision and no stablecoin exemption, so every transaction the UK stops taxing becomes a US gain with no UK tax available to credit against it. Anyone with real losses in DeFi positions should also note that the window to crystallise them as allowable UK losses closes when the rollover takes effect.
