Important points
- HMRC has asked all crypto platforms in the country to start reporting their users’ domestic and cross-border transactions under the Crypto Asset Reporting Framework (CARF), which is scheduled to come into force in 2027.
- CARF is a framework designed to exchange cross-border cryptocurrency transaction data between global tax authorities to increase transparency in digital asset markets. This requires cryptocurrency service providers to conduct due diligence, verify the identity of users, and automatically collect and report transaction information annually.
- CARF’s automated reporting channel does not cover domestic crypto transactions, but the UK’s move to expand arbitrage is an effort to crack down on tax avoidance. The EU, Canada, South Korea, Japan and Australia have already rolled out this program.
- The UK has also introduced a new tax proposal called “no gain, no pain” that would exempt users of DeFi loans and liquidity pools from paying capital gains tax until the underlying cryptocurrencies are sold.
UK crypto platforms will be required to collect all transaction data from resident users from 2026 as authorities prepare to crack down on tax avoidance. This change is designed to expand coverage. Crypto Asset Reporting Framework (calf).
This gives crypto users, traders and investors until the end of next year to take control of their digital assets, after which they will face fines and sanctions.
UK tax authorities require crypto platforms to report transactions under CARF
The new ruling will give HM Revenue and Customs (HMRC), the UK tax authority, automatic access to UK users’ domestic and cross-border encrypted data. This will strengthen the country’s tax compliance ahead of CARF’s first global information exchange in 2027.
CARF is a framework designed by. Organization for Economic Co-operation and Development (OECD) aims to exchange cross-border cryptocurrency transaction data between global tax authorities to increase transparency in the burgeoning digital asset market. The rules require crypto asset service providers to conduct due diligence, verify the identity of users, and report detailed transaction information annually.
This framework primarily focuses on cross-border cryptocurrency activities. This means that all transactions that occur entirely within UK borders will not be subject to CARF’s automated reporting channels. By expanding to cover domestic remittances, the government aims to prevent cryptocurrencies from becoming a “non-CRS” asset class and escaping the visibility that applies to traditional financial accounts under the Common Reporting Standard (CRS).
CARF has already been deployed in the European Union (EU), Canada, Australia, Japan, and South Korea.
HMRC said this unified approach will streamline reporting for crypto companies, while providing more complete data for tax authorities to identify non-compliance and assess taxpayers’ obligations.
Platforms classified as ‘reporting crypto asset service providers’ will be required to send details of their users’ transactions directly to HMRC in 2027. That data will allow regulators to determine how much tax crypto investors will have to pay. The tax authority also said it plans to impose sanctions on companies that do not comply with the reporting order.
UK’s ‘no gain, no pain’ proposal aims to exempt DeFi users from capital gains tax
On Wednesday, the UK proposed a “no gain, no loss” cryptocurrency tax framework that would defer capital gains liabilities for users. decentralized finance Provides a (DeFi) lending and liquidity pool platform until the underlying crypto assets are sold.
Under the new ruling, HMRC will calculate the taxable gain or loss when liquidity tokens are redeemed based on the number of tokens received by users compared to the original amount originally deposited with the platform.
Currently, when UK cryptocurrency users deposit funds into DeFi protocols, regardless of their purpose, they are subject to capital gains tax, which can vary between 18% and 32% depending on activity.
Stani Kulechov, CEO of decentralized cryptocurrency lending and borrowing protocol Aave, said the “no gain, no pain” proposal is a “huge win” for DeFi users across the UK who want to borrow stablecoins against cryptocurrency collateral.
HMRC said it is still consulting with industry stakeholders to assess the merits of this approach and the need to make legislative changes to the rules governing the taxation of crypto loans and liquidity pools.
US, Spain, Switzerland, South Korea adopt different cryptocurrency tax laws
As cryptocurrency markets become more integrated into mainstream finance, governments around the world are updating their tax laws to more clearly and consistently capture the activity of digital assets.
National Tax Agency South Korea announces seizure of crypto assets in October If authorities suspect that a taxpayer is hiding digital assets to avoid obligations, they will be held in cold wallets and searched for hardware devices.
In Spain, a group of parliamentarians recently proposed a maximum tax rate of 47% on crypto capital gains. The proposed amendment would shift the benefits of cryptocurrencies to the country’s general income class and set a flat rate of 30% interest for corporate holders.
Switzerland announced on Thursday that CARF reporting rules will come into effect on January 1, but the government has postponed the start of automatic cryptocurrency information exchange with foreign tax authorities until 2027 to decide which countries to share data with.
Meanwhile, in the United States, a lawmaker has introduced the Bitcoin for America Act, which would allow taxpayers to satisfy their federal tax obligations with Bitcoin (BTC) and use the proceeds to fund the Strategic Bitcoin Reserve. The proposal would also exempt these coins from capital gains tax by treating them as neither profits nor losses for taxpayers.
Also read: What is the driving force behind Bitcoin’s recovery to $100,000 amid concerns about volatility?
