About Nephos Group
Nephos Group is an international tax and structuring advisory firm working with private clients, family offices, entrepreneurs, and corporate groups across multiple jurisdictions including the UK, UAE, and a range of international financial centres. Our clients regularly hold, transact in, and are increasingly receiving payments in cryptoassets including stablecoins. We respond to this Call for Evidence in a professional advisory capacity, drawing on direct client experience.
Executive Summary
Nephos Group welcomes this Call for Evidence. The government’s decision to consult specifically on stablecoins, rather than continuing to treat them as interchangeable with speculative cryptoassets, reflects a mature and commercially realistic approach to the digital assets landscape.
Our overarching position is as follows:
Stablecoins that are designed to function as payment instruments should be taxed as such. Subjecting routine payment transactions to capital gains computation requirements creates disproportionate compliance burdens relative to the practical revenue impact, and risks introducing unintended friction for digital finance innovation in the UK.
We advocate for:
1. A simplified and proportionate CGT treatment for qualifying stablecoins used in payment transactions, aligned with their function as payment instruments
2. Alignment of the treatment of interest-like returns with that of fiat currency equivalents
3. A clear and consistent corporate tax framework that removes current ambiguity and reduces the scope for inadvertent non-compliance
4. A forward-looking framework designed to attract stablecoin issuers, institutional users, and digital finance infrastructure to the UK
We address each of the relevant questions below.
Question 1: Background on the Stablecoin Market
We would draw HMRC’s attention to several market dynamics that are directly relevant to the design of an appropriate tax framework.
First, the distinction between stablecoins used for speculative crypto activity and those being deployed in commercial and payments contexts is becoming increasingly meaningful. Our clients increasingly encounter stablecoins not as trading instruments but as operational tools, for cross-border treasury management, intercompany settlement, and supplier payments, particularly in jurisdictions where banking infrastructure is slow or expensive.
Second, sterling-denominated stablecoins are an emerging but strategically important category. The case for UK regulatory and tax leadership in this area is strong: London retains deep institutional capital markets expertise, and a favourable tax treatment for sterling stablecoins would directly support the government’s Financial Services Growth and Competitiveness Strategy.
Third, the institutional and wholesale use case is growing rapidly. UK-regulated entities, asset managers, and treasury functions are beginning to explore stablecoin settlement mechanisms. A tax framework that creates unnecessary friction at that level, particularly through uncertain loan relationships treatment, will act as a deterrent to UK adoption of genuinely transformative infrastructure.
Question 2: CGT Treatment, Administrative Burden and Deterrence
Our position: The current CGT treatment is disproportionate and should be simplified for qualifying stablecoins used in payment contexts to better reflect their functional use.
The requirement to record and potentially report every disposal of a stablecoin, even where the gain is economically nil, as in the case of a sterling stablecoin, offers limited practical benefit from a revenue protection perspective. The administrative burden is is material relative to the limited revenue impact, and the deterrent effect on adoption is significant.
For individual clients who receive wages, consulting fees, or rental income in sterling stablecoins, the position is particularly anomalous. The substance of the transaction is indistinguishable from receiving payment in cash or via a bank transfer, yet the tax compliance obligation is materially greater.
We are aware of clients who have expressed hesitation in accepting stablecoin payments due to the associated administrative complexity, and of others who may find it challenging to fully understand their CGT reporting obligations due to the complexity of the current framework.
The £50,000 reporting threshold for aggregate disposal proceeds, which applies even where no gain arises, further increases the burden without proportionate revenue benefit.
Our recommendation: A simplified treatment should apply to qualifying stablecoins where they are used in a payments context. This is the most operationally straightforward solution and the one most likely to support retail and commercial adoption. The government should not underestimate how significantly a partial measure (such as a low-value reporting threshold) falls short of what is needed to make stablecoins genuinely usable as payment instruments.
Question 3: Income Tax Treatment of Stablecoins
We broadly agree that the Income Tax treatment of stablecoins does not create the same structural difficulties as CGT for most transactional use cases. Receipt of stablecoin income, whether as employment remuneration, trading income, or miscellaneous receipts, is capable of being computed without undue difficulty.
We would however note that the treatment of interest-like returns (addressed further under Question 8 / Question 16) creates a meaningful anomaly that should not be left unresolved.
Question 4: Corporate Accounting Treatment
In our experience advising corporate clients, stablecoins, particularly USDT and USDC are typically accounted for in one of three ways depending on the nature of the entity’s activity and the purpose for which the stablecoin is held:
- As financial assets under IFRS 9, where the stablecoin provides enforceable redemption rights that give rise to a contractual right to receive cash. This is common for treasury holdings and where the stablecoin is explicitly backed and redeemable.
- As inventory under IAS 2, where stablecoins are held in the ordinary course of business for payment or settlement purposes, for example, where a company routinely receives or makes payments in stablecoins as part of its trading operations. In this context, the stablecoin is analogous to cash held in a foreign currency for operational use, and IAS 2 inventory treatment has been applied by some preparers, though this remains an area of inconsistency in practice.
- As intangible assets, where redemption rights are restricted, uncertain, or not directly enforceable by the corporate holder. This is more common where stablecoins are held as part of a cryptoasset portfolio or DeFi operation.
In practice, the line between these treatments is not always clear, and preparers frequently apply different approaches to economically similar instruments. The application of IAS 2 in a payments context is particularly underexplored in existing guidance, yet it is arguably the most appropriate treatment where stablecoins are genuinely functioning as a medium of exchange in the everyday course of business. HMRC’s recognition that there is no dedicated accounting standard is welcome, but it underscores the case for providing statutory certainty through the tax framework rather than leaving companies to navigate competing accounting treatments with divergent tax consequences.
Question 5: Corporation Tax Treatment in Practice
In practice, we observe significant uncertainty among corporate clients as to the correct Corporation Tax treatment of stablecoin holdings. The principal source of confusion is the question of whether a loan relationship arises, which turns on whether the stablecoin gives rise to a “money debt” and whether that debt arises from a “transaction for the lending of money.”
For most corporate stablecoin holders, this produces an uncomfortable ambiguity: the stablecoin may economically behave as a near-cash asset, but whether it is taxed as income
(under loan relationships) or as a gain (under chargeable gains rules) can depend on legal characterisation questions that are fact-specific and on which HMRC has not provided authoritative guidance.
The absence of clarity here is not merely an inconvenience, it creates genuine risk for companies seeking to adopt stablecoins in treasury management or settlement functions. Professional advice is required to navigate what should be a straightforward position, adding cost and friction.
Question 6: Loan Relationship vs. IFRS 9 Mismatches
This is a technically important question. In our view, there are real-world cases where:
- A stablecoin gives rise to a loan relationship (because a money debt arises from the redemption right) but is not accounted for as a financial asset under IFRS 9, for example where the holder has a restricted or indirect redemption mechanism that falls outside the IFRS 9 financial asset criteria; and
- A stablecoin is accounted for as a financial asset under IFRS 9 but does not technically constitute a loan relationship, for example where the accounting reflects the economic substance of a near-cash asset, but the strict legal conditions for a money debt are not met.
These mismatches create scope for divergence between the tax and accounting treatment, which adds complexity without principled justification. We would recommend that the reformed framework establishes a clear statutory deeming provision that aligns loan relationships treatment with the IFRS 9 financial asset classification for stablecoins within the qualifying definition, removing the need for case-by-case legal analysis.
Question 7: Corporation Tax Deterrence
Yes. In our view, the current uncertainty does deter corporate adoption. The practical consequence is that companies seeking to use stablecoins for treasury, cross-border settlement, or DeFi participation face a disproportionate advisory cost relative to the economic value of the transaction. For smaller corporations or early-stage businesses, this can be prohibitive. For larger institutions, it creates additional operational considerations that may slow adoption.
This is a solvable problem. Clear statutory treatment, ideally deeming qualifying stablecoins as within the loan relationships regime, would remove the primary source of uncertainty and cost.
Question 8: Interest-like Returns, Disparity with Fiat Currency
This is an area where the current rules produce outcomes that are difficult to justify on policy grounds. Where a client lends a sterling stablecoin and receives a return, that return is economically indistinguishable from interest on a sterling deposit, yet it is taxed differently, is ineligible for the Personal Savings Allowance, and does not attract the same withholding tax treatment.
This disparity will become increasingly significant as institutional stablecoin lending grows. It may result in inconsistencies with international treatment for UK-resident participants, and a compliance complexity that serves no clear revenue objective.
We strongly recommend that interest-like returns on qualifying stablecoins be treated equivalently to interest on fiat currency debt for both individuals and companies.
Question 9: Other Taxes
We do not identify major structural issues with the Stamp Duty, SDLT, VAT, or Inheritance Tax treatment of stablecoins as currently framed. The “money’s worth” characterisation for stamp taxes purposes appears technically sound, and the VAT analysis (applying VAT to the underlying supply, not the stablecoin as a means of payment) is consistent with HMRC’s approach to other payment instruments.
However, we would flag one area for monitoring: as stablecoin-settled securities transactions become more common in wholesale markets, it will be important to ensure that the Securities Transfer Charge framework applies predictably and consistently where stablecoins are used as settlement assets.
Question 10: Regulatory Definition as Starting Point
We support using the regulatory definition of “qualifying stablecoin” as the starting point for any tax changes. A definition that requires:
- a stable value pegged to a particular fiat currency, and
- backing assets held for the purpose of maintaining that stability
provides a workable boundary that is consistent with the FCA’s regulatory framework and would capture the instruments of commercial relevance (USDT, USDC, and future UK-issued stablecoins) while excluding algorithmic and unbacked instruments where the case for favourable treatment is weaker.
Critically, we agree with HMRC’s instinct that any definition should not be limited to UK-issued stablecoins. Given that the vast majority of stablecoins in current commercial use are issued outside the UK, limiting the scope to domestic issuance would drastically reduce the practical effect of any reform.
Question 11: Preferred CGT Reform Option for Individuals
A simplified treatment, rather than reliance on reporting thresholds.
A reporting threshold for low-value transactions would reduce the compliance burden at the margin but would not resolve the fundamental problem: that using a stablecoin as a payment instrument is treated as a taxable disposal at all. The administrative infrastructure required to monitor whether transactions exceed the threshold, and to aggregate disposals across multiple platforms, would itself represent a compliance burden.
The government should not design a regime that requires individuals to track stablecoin payments in the same way as share disposals. The economic reality is that a stablecoin used to pay for goods or services is not materially different from using a bank account. The tax framework should reflect that reality.
A simplified and proportionate CGT treatment for qualifying stablecoins used in payment transactions is the appropriate, proportionate, and internationally competitive response.
Question 12: Non-Sterling Denominated Stablecoins
We recommend that the initial scope of any simplified and proportionate CGT treatment be limited to sterling-denominated qualifying stablecoins. The case for this approach rests primarily on the payment instrument argument, and this is most compelling where the denominating currency aligns with the taxpayer’s domestic currency, minimising the prospect of economically meaningful FX gains.
Non-sterling denominated stablecoins (e.g. USDT, USDC) do give rise to real FX exposure for UK-resident individuals, and the policy case for extending a simplified and proportionate CGT treatment to non-sterling denominated stablecoins is more nuanced, given the potential for genuine foreign exchange exposure. However, the government should not ignore a practical commercial reality: liquidity in non-sterling stablecoins, particularly USD-denominated instruments, significantly exceeds that available in sterling stablecoins. USDT and USDC collectively account for the overwhelming majority of stablecoin transaction volume globally, and many UK businesses and individuals transacting in the cryptoasset ecosystem or making cross-border payments will inevitably use these instruments rather than sterling alternatives, simply because the market infrastructure supports it.
In this context, a blanket exclusion of non-sterling stablecoins risks the reformed framework having limited practical effect in the near term. We would recommend that HMRC consider introducing a transaction-value threshold below which disposals of non-sterling qualifying stablecoins used in payment contexts are disregarded for CGT purposes.
This would provide meaningful relief for everyday commercial use, where FX gains are likely to be negligible, while preserving CGT exposure on larger transactions where real economic gains may arise. Such a threshold approach is a pragmatic middle ground that acknowledges both the FX exposure argument and the market liquidity reality, and could be revisited as sterling stablecoin infrastructure matures.
Question 13: Income Tax Changes
We do not recommend wholesale changes to the Income Tax treatment of stablecoins beyond the reform to interest-like returns addressed elsewhere. The current framework, charging stablecoin receipts in the same or similar way to cash receipts, is broadly appropriate and does not create systemic difficulty for our clients.
Question 14: Preferred Corporation Tax Reform
For companies, we recommend that HMRC introduce a statutory deeming provision that brings qualifying stablecoins within the loan relationships regime where they are held on revenue account. This should be achieved by treating qualifying stablecoins as giving rise to a money debt for the purposes of Part 5 Corporation Tax Act 2009, removing reliance on the current fact-specific analysis.
The effect of this would be that exchange gains and losses, and returns on stablecoin lending, would be taxed as income rather than subject to the chargeable gains regime, producing a treatment that reflects the economic substance of these instruments and aligns with how IFRS 9 financial assets are generally taxed.
Lending of qualifying stablecoins should be treated as a transaction for the lending of money, with the return treated as interest for all Corporation Tax purposes.
Question 15: Accounting-Based Limitation
We support the use of IFRS 9 / UK GAAP financial asset classification as an eligibility criterion for the reformed loan relationships treatment, but would caution against making it the sole determinant. As noted in response to Question 6, there are cases where the accounting and legal characterisation diverge. The reformed framework should include a backstop deeming provision that applies the loan relationships treatment to any qualifying stablecoin regardless of whether it is classified as a financial asset under IFRS 9, provided it meets the statutory definition.
OCI recognition should be brought within the framework through a specific rule deeming OCI movements in qualifying stablecoins to be brought into account as income, consistent with existing rules for financial instruments subject to fair value accounting.
Question 16: Interest-like Returns, Equivalence with Fiat Interest
Yes, unequivocally. The returns generated from lending qualifying stablecoins should be treated as interest for all tax purposes, for both individuals and companies. There is no principled policy justification for the current disparity, which is an artefact of the legal characterisation of stablecoins as non-money rather than a considered policy choice.
For individuals, this would mean returns on stablecoin lending are eligible for the Personal Savings Allowance and taxed as savings and investment income, consistent with fiat currency deposit returns. For companies, it would bring such returns within the loan relationships regime as income.
Question 17: Stablecoins in Liquidity Pools
Based on our advisory experience and publicly available market data, stablecoins represent a very substantial and growing proportion of DeFi liquidity pool activity. The following figures illustrate the scale of the market and the centrality of stablecoins to it:
Market scale. The total stablecoin market capitalisation has grown to approximately $315 billion as of early 2026, with total stablecoin transaction volume reaching $33 trillion in 2025, representing growth of approximately 72% year-on-year, and surpassing the annual throughput of traditional payment processors such as Visa. USDC and USDT together account for over 95% of that volume, with USDT commanding approximately 60% dominance by circulating supply.
DeFi liquidity pool concentration. Stablecoins are foundational to DeFi liquidity infrastructure. On major automated market maker platforms, stablecoin and wrapped token pairs dominate total pool volume. On Uniswap, the largest decentralised exchange by volume, pools paired with stablecoins or major tokens account for the vast majority of active liquidity pools. Curve Finance, which is specifically designed to optimise stablecoin-to-stablecoin swaps with minimal slippage, holds approximately $2.25–$2.73 billion in TVL and processes billions in stablecoin volume annually, making it a foundational liquidity layer for the entire DeFi ecosystem. Aave, the leading DeFi lending protocol, supports $40 billion in TVL with stablecoin deposits generating 4–7% APY and representing a core component of its borrowing and lending activity.
The dominance of USD-denominated stablecoins. The overwhelming majority of liquidity pool activity involves USD-denominated stablecoins, primarily USDT and USDC. Sterling-denominated stablecoins do not yet exist at scale in DeFi. This is directly relevant to the design of any reformed tax framework: a regime that applies only to sterling-denominated stablecoins would, in the near term, capture only a marginal proportion of actual stablecoin liquidity pool activity by UK participants.
Daily transaction volumes. Transaction volume for stablecoin liquidity pools in 2026 is estimated at approximately $298 billion daily, reflecting significant institutional-driven growth. Daily stablecoin circulation facilitates approximately $30 billion in transactions, underlining their role as the primary medium for value transfer and liquidity management in the digital asset economy.
The government should treat the stablecoin-liquidity pool interaction as a primary design constraint, not an afterthought. The scale of these figures makes clear that stablecoins are not a niche instrument, they are the monetary base of decentralised finance, and tax policy in this area will have real and immediate consequences for UK participants in global DeFi markets.
Question 18: Interaction with Cryptoasset Loans and Liquidity Pools
We support the “no gain, no loss” approach being developed for cryptoasset loans and liquidity pools, but agree that its interaction with a a simplified and proportionate treatment requires careful design. We recommend:
- The no gain, no loss treatment should not apply where a disposal moves between qualifying stablecoins within the simplified treatment and other cryptoassets outside that treatment, to ensure consistency in tax outcomes.
- Where gains are rolled over into a qualifying stablecoin that is subsequently subject to simplified treatment, the original base cost should be preserved and brought into account on any future disposal outside that treatment.
The design challenge here is real but manageable. HMRC should work with industry on technical proposals to ensure the two frameworks are coherent.
Concluding Observations
The UK has a genuine opportunity to establish a world-leading tax framework for stablecoins, one that supports innovation, reduces compliance friction, and positions sterling-denominated stablecoins as the settlement currency of choice in a growing range of commercial and financial contexts.
The current treatment, inherited from a framework designed for speculative cryptoassets, is not fit for purpose in a world where stablecoins are increasingly functioning as payment instruments and institutional settlement assets. The government has rightly identified this. The question is whether reform will be bold enough to make a material difference.
We urge HMRC and HM Treasury to move with purpose, consult widely with industry practitioners, and introduce a framework that is both administratively straightforward and internationally competitive. Incremental changes may not fully address the operational realities faced by market participants and that the government’s own Financial Services Growth and Competitiveness Strategy demands.
Nephos Group would welcome the opportunity to participate in any stakeholder meetings or technical working groups convened as part of this process.
