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.
Your allowable costs are the amounts you can deduct from your disposal proceeds when working out the capital gain or loss on a crypto asset. There are two parts to this: the cost of acquiring the crypto, and any incidental costs of buying or selling it.
The acquisition cost usually comes from your pooled cost. For fungible tokens that are bought and sold without identifying the individual units, HMRC groups each type of token into its own pool (NFTs are separately identifiable, so they are not pooled). Once the same-day and 30-day matching rules have been applied, the cost you deduct on a disposal is a pro-rata share of that pool rather than the price of any single purchase. We explain how the pool and the matching rules work in How do I calculate capital gains on cryptocurrencies in the UK?, and the 30-day rule in the bed and breakfasting rule.
On top of the acquisition cost, HMRC lets you deduct certain incidental costs of buying and selling. These include:
transaction fees paid for having the transaction included on the distributed ledger (the blockchain)
advertising for a purchaser or a vendor
professional costs to draw up a contract for the acquisition or disposal of the tokens
costs of making a valuation or apportionment to be able to calculate gains or losses
Not every fee qualifies though; for example, costs you have already deducted against profits for Income Tax cannot be deducted again for Capital Gains Tax. Recap applies HMRC's same-day, 30-day and Section 104 pooling rules automatically and includes the transaction fees recorded on your trades, so your gains and losses already take these costs into account.
Need to sort out your crypto taxes? Use Recap, the privacy focused cryptocurrency accounting software to calculate the taxable gain or loss on your cryptocurrency investments!