Disclaimer: This article is intended as an informative piece. This is not accounting or tax advice. Please speak to a qualified tax professional about your specific circumstances before acting upon any of the information in this article.
Redenominations and smart contract migrations (or upgrades) are relatively common in the crypto world, but they can be tricky to account for correctly in your tax records.
Recap provides expert tools that may help you resolve these cases, especially when the economic value of the asset has not changed—similar to a share split or a technical upgrade.
Important Disclaimer
Recap’s HMRC Expert Mode is designed for qualified tax professionals and experienced users who are confident with UK cryptoasset tax rules. Incorrect use of these tools may lead to:
Inaccurate tax calculations, which could result in HMRC penalties
Unintended changes to your Section 104 pools that are hard to interpret
Complex tax situations that may require professional support to resolve
We strongly recommend consulting a qualified tax adviser before using these features.
By enabling Expert Mode, you confirm that you understand the risks involved and accept full responsibility for the resulting tax treatment.
What is a token redenomination?
A token redenomination changes how a cryptocurrency is denominated — typically by adjusting its decimal precision or total supply — while maintaining the overall market capitalisation.
These are generally passive events, where the project adjusts the denomination of the token and users receive the new tokens automatically, either in wallets or via exchanges. There is no user-initiated transaction, and the total value held remains unchanged.
Example:
If 1 old token is converted into 100 new tokens while the overall market capitalization remains the same:
Total token value: Unchanged
Total supply: Increases 100-fold
Price per token: Decreases proportionally (divided by 100)
In Recap, this situation could be treated as a Pool Transfer to preserve the original cost basis while ensuring your balances reflect the new number of tokens.
📘 Potential HMRC Parallel: Token redenominations may be treated similarly to share splits under HMRC rules. As with a traditional share reorganisation, no disposal occurs, and the cost basis could be carried over to the new holding. See CG51700 for HMRC guidance on reorganisations.
What is a contract migration (or Upgrade)?
A contract migration or upgrade involves moving a token or smart contract to a new address—usually on the same blockchain—without changing the economic nature or value of the asset. These migrations typically occur for technical, security, or governance-related reasons.
Sometimes this can result in having a balance of two tokens - both the old depreciated token and also new upgraded token.
In Recap, this situation could be treated as a Pool Transfer to move the original cost basis from the old depreciated token to the new upgraded token.
📘 Potential HMRC Parallel: Contract migrations may be treated similarly to share reorganisations (such as share-for-share exchanges) under HMRC rules. Where there is no change in beneficial ownership or value, the new tokens may be considered to inherit the acquisition date and cost of the old tokens. See CG52500 for HMRC guidance on share reorganisations and TCGA 92/S135.
There are two common types of migration patterns:
1. Passive Migration
In passive migrations, the network or project issues a new token to holders—either through an airdrop or by crediting wallets or exchange balances—without requiring the user to take action.
You may end up holding both the old and new tokens simultaneously.
Since there may not be a corresponding on-chain trade or swap, Recap does not automatically create a transaction in this case.
2. Burn-and-Mint Migration (Upgrade Process)
Some migrations require users to actively submit old tokens in exchange for new ones. The old tokens are burned and new tokens minted—often in a single, atomic transaction. These usually appear as a Swap or Trade in Recap.
How to Record a Token Redenomination in Recap
To help users handle redenominations in Recap, we have added a Pool Transfer (Expert) transaction type.
To access this transaction type, you must first enable HMRC Expert Mode. Please carefully read the warning message before enabling this feature.
Step 1: Enable HMRC Expert Mode
Go to Settings in Recap
Click on the Tax tab
Toggle on Enable HMRC Expert Mode
Read the warning message before pressing Enable
This unlocks advanced tax treatment options, including Pool Transfers.
Step 2: Create a Pool Transfer transaction
Option 1: Apply Expert Tax Treatment to an Existing Transaction
If you already have a transaction in Recap that represents the redenomination or contract migration (e.g., a trade or swap):
Go to the Activity screen
Locate the existing Swap or Trade in your activity
Click the transaction
Under Details, find the Tax Treatment (Expert) setting
Set this to Pool Transfer
This reclassifies the transaction, preserves your cost basis and ensures no disposal is recorded.
As always, please check the Tax tab for this transaction to make sure you are happy with the calculations Recap has made.
Option 2: Manually Create a Pool Transfer (Expert) Transaction
If no transaction currently exists, you can create one manually:
Go to the Activity screen
Click +Add Transaction the top right
Choose Transaction Type: Pool Transfer (Expert)
Fill in the following:
Date – When the contract migration or redenomination occurred
Source – Original token quantity and symbol
Target – New token quantity and new symbol
Reason for cost transfer – Options: Redenomination, Upgrade, Correct
This creates a new transaction that transfers the pool costs from the source asset to the target asset for the chosen amount of tokens.
Again, please check the Tax tab for this transaction to make sure you are happy with the calculations Recap has made.
What Happens in Recap?
The Pool Transfer is non-taxable
No disposal is recorded (so no gain or loss)
Your cost basis is moved from the old token to the new one
Reports and balances stay correct
An example
Polkadot (DOT)
On August 21, 2020 a redenomination of DOT occurred. From this date, one DOT (old) became 100 new DOT. The token ticker (DOT) remained unchanged.
By manually creating a Pool Transfer transaction the following tax treatment could be applied:
After making any adjustments, ensure that your pool and portfolio balances reflect the correct amounts following the redenomination. You should also verify that your pool costs remain accurate and consistent with your expectations.
To do this, review the Assets screen, which should show the updated DOT quantity while maintaining the same overall value and cost basis.