HMRC updates its UK stablecoin tax paper: a deferral for existing holders and a duty to deduct tax on interest

HMRC updated its UK stablecoin tax paper on 28 October 2026, Budget day, revising a paper first published on 13 July. The revised tax note adds two things that matter to holders and lenders: existing holders can defer the gain or loss they face when the new rules begin, and anyone paying interest on stablecoin debts may have to deduct a sum for Income Tax. It also replaces July’s blank costing with “negligible” in every year.

The core policy is the same as in July. Disposals of “eligible” stablecoins by individuals and trustees would be exempt from Capital Gains Tax from 6 April 2027, and their lending returns would be taxed as savings income. Companies move to rules based on their accounts from 1 April 2027. None of this is law yet. It depends on Finance Bill 2026-27, and Parliament’s bill page showed no first reading when we checked on 2 November.

The Budget itself said little. The Budget report does not mention stablecoins, and HMRC’s Budget overview of tax legislation lists the measure in its table of items with no matching announcement in that report. Paragraph 1.35 of the same overview confirms that the measure goes into the Finance Bill and will “extend the application of withholding tax”. The Chancellor’s Budget resolutions include one on cryptoassets, number 36, which covers the Capital Gains Tax exemption. So this is a revised technical paper, not a new policy, and it does not settle the question most holders will ask: HMRC has not said whether USDT or USDC qualify.

UK stablecoin tax: what changed between July and October

We compared the page as it stands today with an archived copy of the note captured on 27 September, which still showed only its 13 July publication. Some items that look new in October are only new to the note: the “widely available” test and the deemed sale for existing holders were already in the July draft clauses.

The note also gains a policy aim it did not have in July: stablecoins are to be taxed as “a means of payment rather than an asset for generating investment returns”. The same update changes some population shares in the equalities section, which has no bearing on holders.

There is a gap readers should know about. The accessible version of the draft legislation carries the 28 October date, but its clauses match a copy archived on 17 July. The PDF of the clauses is a file created on 9 July, and neither it nor the explanatory note contains a deferral election or a clause on deducting Income Tax. So both new items exist, for now, only as a description in the note. We found no published wording for either.

The catch for existing holders on 6 April 2027

Draft clause 1 treats anyone holding a qualifying stablecoin just before 6 April 2027 as having sold it and bought it back at market value, with any gain or loss accruing on 6 April. No coin has to move. The note’s new sentence softens this: individuals and trustees “can elect for these gains and losses to be deferred until disposal”.

Why would a stablecoin show a gain at all? Because UK tax is measured in sterling. A dollar coin holds its dollar value, but its pound value moves with the exchange rate, so a holder who bought when the pound was weaker or stronger than on the start date has a difference to account for. It can go either way, since the note speaks of gains and losses.

HMRC gives no form, deadline or procedure for the election, and it does not say how a deferred amount will be tracked. Companies get a parallel version: adjustments based on accounting carrying values on 1 April 2027, again with an election to defer. This is general information on draft rules, not tax advice.

Holders with mixed lots should read one more clause. Coins qualifying under the new rules and coins that do not are treated as separate pools, and on a partial sale the non-exempt blockchain that runs exactly as written when it is called, holding and moving funds according to its code, without an intermediary able to change the outcome.">smart contract holding reserves of two or more tokens, supplied by users, that a decentralized exchange uses to execute trades automatically at a price set by a formula.">pool counts as sold first. Eligibility is fixed on the day of acquisition, or on 6 April 2027 for anything bought earlier. A later change in a coin’s status does not reach back to that test for capital gains.

USDT and USDC: HMRC has not said

Nobody can yet name a coin that passes. In its July response the government said HMRC would look to set out in guidance its view on whether the largest stablecoins in use are eligible. That guidance has not appeared in the pages we read, and the October update gives no list. Claims that USDT, USDC, EURC, PYUSD or RLUSD are covered go beyond what HMRC has published.

The draft test does give some clues. It must be reasonable to assume that enough currency or other assets are held to keep a stable value against sterling or another currency, that the coin is designed for payment or settlement, and that it is widely available and actively traded. A coin cannot count itself as backing. The government said in July that non-sterling coins would be included, since the market is heavily weighted towards them, and that unbacked algorithmic stablecoins would not. A sterling stablecoin faces the same test as a dollar one. Our guide to what stablecoins are explains how these backing models differ.

Losses are the other side of the exemption. The government said in July that economic losses would not be relieved. Some respondents argued for a treatment that would let a holder claim a loss if a coin fell far below par, but the government refused specific relief in that case, saying it would mean “partially underwriting losses on stablecoins”. A depeg after the start date would bring no capital loss to claim.

Stablecoin interest and the new duty to deduct

Individuals and trustees would pay tax on stablecoin lending returns as interest, under the savings income rules. That covers a debt of eligible stablecoins and what HMRC calls Single Cryptoasset Lending Arrangements. Returns from automated market makers stay outside, because the government said in July they may not be equivalent to interest. How that income fits with the ordinary UK regime is set out in our guide to crypto tax in the UK, which predates this update.

The withholding point is the largest addition. In July the government was still assessing it. The October note extends the duty on UK-source yearly interest to interest-like returns under stablecoin debts, for companies, local authorities, partnerships and individuals, with the stated aim of matching fiat lending. It adds that businesses will need to consider these obligations, a sentence absent in July.

Existing exclusions carry over, and one more is added for debts entered into through exchanges that make them widely available to unconnected, independent persons. HMRC does not define such an exchange in the note or say whether a DeFi lending protocol could fit. The rate is not stated either. A small share of respondents had warned in July about how withholding could work in centralised and decentralised settings. The government replied then that treating stablecoins differently would be a challenge and that it had to protect the Exchequer. The update does not take up the practical question.

DeFi loans and liquidity pools: a separate paper, updated the same day

HMRC also revised its note on cryptoasset loans and liquidity pools on 28 October. That measure starts on 6 April 2027 for individuals and trustees, and HMRC puts the number affected at about 700,000. Entering or leaving a qualifying lending arrangement over the same type of asset is treated as “no gain, no loss”. Pools follow the same rule to the extent that the same quantity comes back, and any difference creates a gain or loss. Readers new to this can start with our explainer on liquidity pools.

The update tightens the wording on lending arrangements and fills in the costing, also negligible where July’s cells were empty. Stablecoins sit awkwardly here. A lending arrangement over an exempt coin is simply exempt, so the “no gain, no loss” rule is not needed. A pool holding an exempt coin gets no exemption of its own, and “no gain, no loss” does not apply to the exempt element. The government said in July that it would stop gains being rolled between exempt and non-exempt assets.

Most reactions predate the update

Notes written since the Budget are summaries, not verdicts. Skadden, on 30 October, repeats the withholding extension and says “An election will permit deferral until disposal”, without comment. Hill Dickinson, on 29 October, saw “relatively little new commentary beyond the July draft legislation” and mentions neither item. We found no response from a trade body or DeFi project to the October text.

The sharper comments came earlier, and they address the July drafts. Simmons & Simmons wrote on 14 July that the proposals “will be broadly welcomed”, while noting that the drafts cover direct tax only, not VAT, and that withholding was still open. That last point has now been overtaken.

Aave Labs, in a response dated 7 September, called the texts “good drafts” but objected to two things. The test of whether a coin was designed for payment “asks what an issuer intended”, it wrote, which a secondary-market buyer cannot establish. And it asked for the day-one charge to be removed: “A tax bill should not arrive on the first day of a relief.” Its paper does not mention a deferral. HMRC has kept the charge in its note and added the election, without saying whether any response prompted it.

ICAEW, the accountants’ body, wrote on 2 September: “we do not agree with the creation of dry tax charges in the tax system”. It proposed removing the deemed sale or holding the gain or loss over until eventual disposal, which is close to what the October note now describes. CryptoUK, in a response dated 11 September, backed the “overall direction of travel” and asked HMRC to “maintain a clear, dated list of eligible stablecoins”.

The call for evidence behind all this drew 29 written responses. Around 80% of those expressing a view backed a CGT exemption, and over two thirds of those with a view wanted interest-like returns treated as interest for individuals, according to the government’s July summary.

What to watch before April 2027

The first item is the text of the withholding and election rules, followed by HMRC’s guidance on the largest coins. Then comes the Finance Bill itself: the eight-week technical consultation that opened on 13 July has run its course, but the clauses could still change. VAT stays outside these drafts.

The tax dates sit between two regulatory ones. The FCA’s application window closes on 28 February 2027, and its crypto regime is expected to come into force on 25 October 2027. We found no FCA authorisation condition in the eligibility test, so the tax status of a coin does not appear to depend on the firm behind it being authorised.

Across the Channel the direction differs for now. French MPs voted at first reading on 16 October to tax swaps into stablecoins from 2027, but that amendment sits in the revenue part of the 2027 budget, which the National Assembly puts to a solemn vote on Tuesday 3 November. If deputies reject that part, the adopted amendments fall and the tax goes unless a senator brings it back, Journal du Coin reported on 2 November. If they adopt it, the text still has to clear the Senate. Under the UK draft, a disposal of an eligible stablecoin by an individual would be outside Capital Gains Tax altogether.