Are crypto loans taxable?

In many countries, borrowing against crypto has no immediate tax consequence: nothing is sold, and a loan is a debt rather than income. The tax questions arise around the loan, when collateral is sold, when you repay with crypto, or when currencies move.

The short answer

Why a loan is usually not a sale

Tax on gains is normally triggered by a disposal: selling an asset, exchanging it for another, spending it or giving it away. Pledging an asset as security is not, in itself, a disposal. You remain its owner, you are entitled to get it back, and its gains and losses remain yours. That is why, in many countries, taking out a loan against crypto has no immediate tax consequence, much as taking out a mortgage against a house does not.

The way the loan is structured can matter. Some lenders take legal ownership of the coins you deposit, a title transfer, and only promise to return equivalent coins later; some tax authorities may view such an arrangement differently from a pledge. At Lombard Private, your collateral is pledged to secure your loan and held at an address dedicated to it; it is never lent on or reused. Ask your adviser how your country treats the arrangement you choose.

Events that can be taxable

A liquidation

When collateral is sold to bring the loan-to-value back down, or to close the loan, that sale is generally treated like any other: a gain or a loss is calculated by comparing what the coins sold for with what you paid for them. In many countries, the liquidation fee can be counted as a cost of the sale. How the cost of the coins sold is measured, for example first in, first out, average cost or pooling, depends on your country.

Selling collateral to repay

If you choose to sell some of your coins to raise the money to repay the loan, that sale is a disposal in its own right, whoever carries it out.

Repaying with stablecoins

Repaying in USDT or USDC means parting with them. Some countries treat that as a disposal; because a stablecoin’s value barely moves, the gain or loss is usually small, but it may still have to be reported.

What is generally not taxable

Receiving the loan, paying interest and getting your own collateral back are generally not taxable events for the borrower. Answering a margin call by adding collateral or repaying part of the loan does not sell anything either.

A worked example

An illustration, with round figures. You bought 1 BTC some years ago for €20,000. Today bitcoin is worth €50,000 and you borrow €25,000 against it, a loan-to-value of 50%. Bitcoin then falls to €31,250, your 80% threshold, and the margin call that came before was not answered.

Illustrative figures. After the sale, 0.5588 BTC remain pledged and €11,351 is still owed: the loan continues.

Had the margin call been answered, by adding collateral or repaying part of the loan, nothing would have been sold and there would have been no disposal at all. Keeping a cushion is not only the safest way to borrow; it is also the way to avoid an unplanned taxable event.

Can the interest be deducted?

It depends on what the money is used for and on where you live. Interest on money spent personally is generally not deductible. Some countries allow a deduction when the loan finances an investment or a business activity, sometimes within limits; others do not. For a company, interest is usually a business expense, subject to the ordinary rules. Whatever your situation, keep your interest statements: they are the evidence your adviser will need.

Currency gains and losses

If you borrow in a currency other than the one you report in, for example US dollars when you live in the euro area, the value of your debt moves with the exchange rate. In some countries, and particularly for companies, repaying a foreign-currency loan can produce a taxable currency gain or a deductible loss. Borrowing in the currency you report in avoids the question; we pay loans in euros, US dollars, pounds sterling and Swiss francs.

The records you will need

Your client area keeps the documents that describe your loan. Download them and keep them with your tax records:

• The loan contract: the loan and pledge agreement you accepted, with its date and terms.
• Payout confirmations: each transfer to your bank account, with its amount and date.
• Interest statements: the interest charged and paid, period by period.
• Liquidation statements, if a sale ever happens: date, quantity sold, price and fee.
• Collateral receipts: the address of your loan and the on-chain transactions of your deposits and returns.

Some records only you can keep: what you paid for your coins and when, the statements of the exchanges or wallets you bought them through, and the addresses you sent your collateral from. Without the original cost of your coins, the gain on a liquidation cannot be calculated.

Questions for your tax adviser

1. Is pledging crypto as collateral a disposal where I live, and does it matter whether the lender holds it under a pledge or by title transfer?
2. How would a liquidation be taxed, and how is the cost of the coins sold calculated?
3. Is the liquidation fee deductible as a cost of the sale?
4. Can I deduct the interest, given what I will use the money for?
5. Is repaying in USDT or USDC a disposal?
6. If I borrow in a foreign currency, can repaying create a currency gain or loss?
7. Do I need to report the loan or the pledged assets anywhere, for example in a wealth or asset declaration?
8. For a company: how should the loan, the interest and the pledged assets be recorded in the accounts?

Borrowing or selling: the tax angle

Selling realises your gain now and usually makes it taxable now. Borrowing defers the question, because you keep the asset, which can be worth a great deal if you would rather not sell. But tax should not be the only reason to borrow: a loan that ends in a liquidation realises the gain anyway, at a lower price and after a fee. Borrow with a cushion, and decide on the merits: do you want to keep the asset? Our guide Borrow or sell? works through the numbers, and the liquidation price guide shows how to keep a sale at a safe distance.