When you dispose of tokens, how do you work out the chargeable gain (or allowable loss) for Capital Gains Tax purposes? The basic calculation is as follows:
Proceeds of disposal
less allowable expenses
equals chargeable gain
less CGT Annual Exempt Amount (if not used elsewhere)
equals taxable gain
There are complicated rules about what expenses are “allowable” – i.e. what expenses you can and cannot offset against the sales proceeds, when working out the chargeable gain or allowable loss. In general terms, however, allowable expenses can include:
- The original cost of acquiring the tokens
- Transaction fees paid for adding the transaction to the digital ledger
- Advertising for a purchaser or vendor
- Professional fees for drawing up a contract for the acquisition or disposal of the tokens
- Costs of making a valuation or apportionment, in order to be able to calaculate the gain or loss
Most tokens are "fungible" - that is, interchangeable. Fungible tokens (like Bitcoin, Ether, or Dogecoin, for example) are "pooled" together for chargeable gains purposes, with a separate pool being maintained for each type of token. If you dispose of a proportion of your holding of a particular token, an appropriate proportion of the pooled value is brought into account in the chargeable gain calculation.
The costs of any mining activities are not allowable expenses for Capital Gains Tax purposes (but they might attract relief under the Income Tax rules).