Advice + Tax + Accounts for smart business owners.
May 13th 2021

Cryptoassets: CGT and "pooling"

How do the Capital Gains Tax rules work when you buy and sell the same kind of token on multiple occasions, so that it is not possible to identify the particular tokens being disposed? That’s where “pooling” comes in; if you already invest in shares, you might have come across this concept before.

Pooling allows for simpler Capital Gains Tax calculations, and it applies to shares and securities of companies and also any other assets, including tokens, where they are “of a nature to be dealt without identifying the particular assets disposed of or acquired”.

When pooling applies, for tax purposes you have a single pool of tokens that increases or decreases with each acquisition, part disposal or full disposal.

Each type of token needs its own pool; for example if you own Bitcoin, Dogecoin and Ether, you would have three separate pools, each with its own “pooled allowable cost”.

Airdropped tokens go into their own pool unless you already hold tokens of the same kind, in which case the tokens are added to the existing pool.

The pool comes into play when we need to compute the chargeable gain (or allowable loss) on a disposal of some tokens out of a bigger holding of the same type of tokens; broadly speaking, the allowable cost of the disposed tokens, for Capital Gains Tax purposes, is an average of the cost of all the tokens in the pool.

The rules are modified when you buy and sell the same kind of tokens on the same day; and when you sell tokens but then acquire the same kind of tokens within the next 30 days; but we don’t really need to get into the detail of that here.

Non-fungible tokens (NFTs) are separately identifiable and are not pooled.

Contact us today if you need help to calculate your chargeable gains and allowable losses arising from your cryptocurrency activities.

We can also provide assistance with structuring your activities to promote tax efficiency.

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