Crypto Staking & DeFi Income

Key facts

Staking rewards are generally treated as miscellaneous income (or trading income if carried out as a business) and taxed at Income Tax rates.
DeFi lending and liquidity-pool rewards are also income when received, with the market value at receipt forming the cost base for future CGT.
Airdrops received in return for a service are income; unsolicited airdrops with no action required may only trigger CGT on disposal.
The £1,000 trading allowance can cover small amounts of staking or DeFi income if you have no other trading/miscellaneous income.
You must keep detailed records of every transaction — HMRC expects dates, token quantities, sterling values, and wallet addresses.

Staking Rewards as Income

When you stake cryptocurrency (for example, locking ETH to help validate the Ethereum network), the rewards you receive are treated by HMRC as taxable income. The income figure is the pound sterling market value of the tokens at the moment they are received in your wallet.^[1]

The classification depends on the scale of your activity:

Occasional staking — reported as miscellaneous income on your Self Assessment return
Staking as a business (systematic, large scale, with a profit motive) — reported as trading income

In either case, the sterling value at receipt also becomes your CGT base cost. If the token later rises in value and you sell it, you pay Capital Gains Tax only on the increase from that base cost — you are not taxed twice on the same value.

Key point: Staking rewards are taxed when received, even if you do not sell them. If you earn £500 worth of ETH from staking during the year, that £500 is added to your income regardless of whether you convert it to cash.

DeFi Lending & Yield Farming

DeFi protocols that pay you interest or fees for lending tokens or providing liquidity create income events in the same way as staking. Common examples include:^[1]

Lending protocols (e.g., Aave, Compound) — interest paid in tokens is income
Liquidity pools (e.g., Uniswap, Curve) — trading fees distributed to LPs are income
Yield aggregators (e.g., Yearn) — rewards are income when they accrue to your position

The tax treatment mirrors staking: the market value at the point of receipt is income, and that value forms the cost base for any future CGT calculation.

Liquidity Pool Complexity

Providing liquidity can create two tax events:

Adding tokens to the pool may constitute a disposal for CGT purposes if you exchange your tokens for LP tokens (a new and different asset)
Fees and rewards received while in the pool are income

When you withdraw from the pool, the removal of LP tokens and receipt of underlying tokens may trigger a further CGT event. The exact treatment depends on the structure of the protocol and whether the LP token is a distinct asset.^[1]

Tip: HMRC’s Cryptoassets Manual acknowledges that DeFi structures are varied and evolving. Where a transaction does not fit neatly into existing categories, HMRC will look at the economic substance of what has happened. Keeping thorough records of every transaction is essential.

Airdrops: Income or Capital?

The tax treatment of airdrops depends on why you received them:^[3]

Scenario	Tax Treatment	When Taxed
Airdrop received for using a protocol, completing tasks, or holding a specific token	Income Tax on the market value at receipt	When received
Completely unsolicited airdrop with no action required	No income charge — base cost is £0	CGT on disposal only
Airdrop received as part of employment or a contract	Employment income (PAYE/NI may apply)	When received

In practice, most airdrops in the DeFi space involve some form of action (holding tokens, using the platform, governance participation), so HMRC is likely to treat the majority as income.

Pooling Rules & CGT on Disposal

Once staking or DeFi rewards enter your wallet, they are pooled with any existing tokens of the same type for CGT purposes. The UK uses section 104 pooling, which calculates a weighted-average cost base across all your holdings of that token.^[2]

When you later sell or swap the tokens, the gain (or loss) is the difference between the disposal proceeds and the pooled average cost per token. The share-matching rules apply in this order:

Same-day acquisitions
Acquisitions within the following 30 days (the “bed and breakfasting” rule)
The section 104 pool (weighted average)

Record-Keeping Requirements

HMRC expects you to keep records of every crypto transaction for at least 5 years plus 1 year after the Self Assessment filing deadline. For each transaction, you should record:^[2]

Date and time of the transaction
Type of transaction (stake, unstake, lend, claim reward, swap, airdrop)
Token type and quantity
Sterling value at the time of the transaction
Wallet addresses and transaction hashes
Running balance of each token held

Key point: DeFi transactions across multiple wallets and chains can generate hundreds of taxable events per year. Consider using crypto tax software that connects to your wallets and calculates income and gains automatically. Manual tracking is feasible for small portfolios but becomes impractical at scale.

Using the £1,000 Trading Allowance

If your total staking and DeFi income (combined with any other miscellaneous or trading income) is £1,000 or less, the trading allowance covers it automatically. You do not need to report it or register for Self Assessment solely because of this income.^[2]

If your income exceeds £1,000, you must report the full amount and can choose to either deduct the £1,000 allowance as a flat deduction or claim actual expenses instead (but not both). The full amount goes on your Self Assessment return, which you can submit with Income Tax filing software such as GoFile.

Frequently Asked Questions

Is crypto staking income taxable in the UK?

Yes. HMRC treats staking rewards as taxable income. The pound sterling value of the tokens at the time you receive them is added to your taxable income for the year. When you later sell or swap the tokens, Capital Gains Tax applies to any increase in value from that point.

How is DeFi yield farming taxed?

Yield farming rewards (such as interest from lending protocols or liquidity-pool fees) are treated as income when received. The value at the point of receipt is your income figure and also becomes the base cost for CGT purposes if you later dispose of the tokens.

Are crypto airdrops taxable?

It depends on the circumstances. If you received the airdrop in return for providing a service or performing an action (such as using a protocol), HMRC treats it as income. If the airdrop was entirely unsolicited with no action required, it may not be income, but Capital Gains Tax will apply when you eventually dispose of the tokens.

Can I use the £1,000 trading allowance for staking income?

Yes, if your total miscellaneous or trading income (including staking rewards) is £1,000 or less, the trading allowance covers it and you do not need to report it. If it exceeds £1,000, you must report the full amount and can either deduct the £1,000 allowance or claim actual expenses.

Sources

Cryptoassets Manual: DeFi lending and staking — HMRC
Check if you need to pay tax when you sell cryptoassets — GOV.UK
Cryptoassets Manual: airdrops — HMRC