Crypto capital gains and share pooling explained

Capital gains summary

When an individual transfers one crypto to another, or to fiat currency (i.e. GBP) and the value of the crypto has risen, the gain will be subject to UK capital gains tax (CGT).

It’s worth noting that HMRC believes that the vast majority of those active in the crypto trading market will be taxed under the CGT rules on their crypto trading profits (rather than the income tax rules).

As a general rule, gains are taxed at these rates:

  • Gains of up to £12,300 are within the annual exemption and taxed at 0%
  • Gains of over £12,300 are taxed at 20%

It may be possible for gains totalling between £12,300 and £50,270 to be taxed at a rate of 10% if the individual has not earned any income which has been subject to income tax during the tax year.

When calculating the gain, the “base cost” of the crypto needs to be calculated. The base cost is calculated with reference to the “share pooling” rules, explained below.

If losses are made on cryptos (i.e. their value falls between the time they are purchased and sold) then these losses are treated as capital losses. Capital losses can be used against capital gains made in the same tax year, or they can be carried forward against future gains made in subsequent tax years. This means that they cannot be used to reduce your income or carried back against gains made in earlier tax years.

Share pooling explained

Each type of crypto or token will have its own pool (known as a section 104 pool). HMRC requires individuals to keep a record of the amount spent on each type of token (as well as any allowable costs which have also been pooled).

There are two rather complex rules (explained below) which need to be considered: the same-day rule and the 30-day rule.

In conjunction with software such as that available from ACCOINTING.com, our crypto tax specialists can help by looking at the types of token and the dates of purchase and sale, and applying the rules in order to generate the tax report.

The same-day rule

The same-day rule is designed to ensure that only one capital gains calculation per token is required to be completed per day. Where an individual buys and sells the same type of token on the same day then all the tokens purchased are treated as being purchased in a single transaction (i.e. the average purchase price is used) and the sale is treated as a single transaction (i.e. the average sale price is used).

If more tokens are purchased than sold, the 30-day rule will need to be considered. If the 30-day rule doesn’t apply, the tokens will be added to the section 104 pool.

If more tokens are sold than purchased, the 30-day rule will need to be considered. If the 30-day rule doesn’t apply, the excess tokens sold will be treated as a disposal from the section 104 pool.

The 30-day rule

The 30-day rule applies only after the same-day rule, as described above, has been applied. The 30-day rule applies to cryptoassets acquired where there has been a sale of the same type of cryptoasset within the 30 days before or after the purchase of the cryptoasset.

In the event that the total number of cryptoassets sold exceeds those purchased on the same day, or the purchases 30 days either side of the sale, the average value of the cryptos purchased outside these times (the pooled assets) is used as the cost of the cryptoasset disposed of.

For more information about how CGT and other UK taxes apply to cryptocurrency, please get in touch with us using our enquiry form.

This article was first published by ACCOINTING.com.

NICOLA HALL

BILSHAN MENSAH

Sam Inkersole

In 2022, Sam won the Taxation’s Rising Star award at the Taxation Awards in and was named in the Accountancy Age 35 Under 35.

Jon Wedge

While Jon’s client work focuses on the financial services sector, he also oversees the firm’s assurance service, as well as supporting the trainees following in his footsteps.

ELANA DIMMER

Elana joined us in 2017 as an ACA trainee, after graduating from Durham University where she had studied languages. She is now a manager in our assurance team.

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