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.
When calculating the cost of acquisition for Capital Gains Tax (CGT) on cryptoassets, individuals must follow HMRC’s guidance regarding “Pooling”. HMRC describes the concept of pooling as “Instead of tracking the gain or loss for each transaction individually, each type of cryptoasset is kept in a ‘pool’. The consideration (in pounds sterling) originally paid for the tokens goes into the pool to create the ‘pooled allowable cost’”.
To find the allowable cost (also known as the base cost) for the CGT computation, the first step is to identify which cryptoassets which have been sold. The ‘matching rules’ as set out below determine the order in which cryptoassets are deemed to have been sold.
On the disposal of cryptoassets, they are first matched with acquisitions:
made on the same day (same day rule), then
made in the next 30 days on a first-in first-out basis (bed and breakfasting rule), then
the rest of the acquisitions are aggregated in the S104 pool (pooling rule)
Once the deadlines for same day and next 30 days acquisitions have passed, these cryptoassets are also added to the S104 pool.
There is a S104 pool for each type of cryptoasset held. The pool is an aggregate of all the acquisitions which are not sold within the subsequent 30 days. Therefore, an average cost for the cryptoassets in the pool is maintained and a pro-rata cost is deducted from disposals using the matching rules.
Below is HMRC’s example, which helps to explain pooling and bed and breakfasting when dealing with cryptoassets:
Melanie holds 14,000 token B in a pool. She spent a total of £200,000 acquiring them, which is her pooled allowable cost. On 30 August 2018 Melanie sells 4,000 token B for £160,000. Then on 11 September 2018 Melanie buys 500 token B for £17,500. The 500 new tokens were bought within 30 days of the disposal, so they do not go into the pool. Instead, Melanie is treated as having sold:
the 500 tokens she has just bought
3,500 of the tokens already in the pool
Melanie will also need to work out her gain on the 3,500 token B sold from the pool as follows:
Melanie still holds a pool of 10,500 token B. The pool has allowable costs of £150,000 remaining.
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