Share Pooling Crypto: How to Calculate Crypto Gains in the UK

Need to know how to calculate crypto gains according to HMRC's share pooling method? Learn how share pooling crypto works and how to calculate your gains.

This guide will let you know what share pooling actually is, the same-day rule, the bed and breakfast rule, and how these rules apply to your crypto calculations.

Share pooling rules

HMRC calls pooling the Section 104 Rule, but for everyone else, it’s known as an average cost basis method.

Here’s how it works: When you have identical assets, you pool those assets and take an average cost basis for each one of those pools.

You need to do this for each kind of crypto asset you own. You have a pool (section 104 pool) for ETH, BTC, DOGE, and so on.

Anytime you dispose of ETH by selling, swapping, spending, or gifting it (unless it’s to your spouse), you’d use this cost basis to calculate any capital gain or loss to report to HMRC.

Crypto wash sales

The thing about the average cost basis is that it can be easily manipulated. Shady investors can:

• Purchase assets at a much lower cost to artificially reduce their cost basis.

• Sell them quickly to reduce their gains and tax bill.

• Then buy back assets quickly after to continue holding long-term investments.

This is known as a wash sale, and HMRC doesn’t approve… at all. That’s why they introduced very specific cost basis rules to define how you calculate the average cost of assets, including the Section 104 Rule.

How to calculate crypto taxes (using the share pooling cost basis method)

You need to work through three rules, in this exact order, to calculate your crypto taxes:

• The same-day rule – TCGA92/S105 (1)(a)

• The 30-day rule (bed and breakfasting Rule) – TCGA92/S106A (5) and (5a)

• Section 104 rule – s.104 pool

Let’s tackle them one by one.

Same-day rule

The same-day rule comes first.

If you buy and sell coins on the same day, you’ll use the cost basis from the tokens or coins you purchased that day to calculate your subsequent gains or losses.

HMRC sees tokens bought and sold on the same day (such as buying some in the morning and selling them that same evening) as a single transaction.

You use the average cost basis and average sale price for all your tokens bought and sold on that day to calculate your gain or loss.

If you sold or traded more tokens than you bought that day, you’ll move on to the bed and breakfasting Rule.

Bed and breakfasting rule

More commonly (and unexcitingly) known as the CGT 30-day rule, the bed and breakfasting Rule says that if you sold tokens and then repurchased tokens of the same kind within 30 days, those repurchases must be used as the cost basis to calculate your gains or losses.

If you sell and repurchase the same tokens within 30 days, you’ll use the FIFO (First In, First Out) cost basis method to calculate your cost basis for disposals from that period (not the cost basis from your Section 104 pool).

Without the 30-day rule, investors could sell at a loss, buy back instantly, and walk off with tax-free gains. HMRC caught on, so this rule makes that a lot more difficult, as the investor will not be able to buy the assets back within the 30 days if they want to use the losses.

If you sold more tokens than you bought within the last 30 days, you’ll move on to the Section 104 rule.

Section 104 rule

We’ve discussed this one before, but in case you skipped it: the Section 104 rule, also known as pooling, says investors should use the average cost basis method to calculate an average cost for a given pool of assets.

The formula is still:

Total cost of the pool / Total number of tokens = Average cost basis

You then use this cost basis to calculate subsequent gains and losses. Let's look at some examples to better understand how each rule works.

Share pooling rules for cryptoassets for companies

For UK companies, HMRC generally requires cryptoassets to be taxed using share pooling rules under section 104, the same as for individuals.

This means instead of tracking the cost of each token, a company groups all tokens of the same type into a single pool. The pool records the total number of tokens held and the total acquisition cost. When more tokens are bought, both totals increase. When some are disposed of, a proportion of the pooled cost is used to calculate the gain or loss for corporation tax.

However, not every disposal comes from the main pool. Two matching rules take priority:

• First, tokens disposed of are matched with tokens acquired on the same day.

• If there are still tokens left to match, the disposal is then matched with tokens acquired within the following 30 days (the “bed and breakfast” rule).

• If the disposal is not fully matched under these rules, the remaining amount is taken from the section 104 pool.

Calculate UK crypto taxes with Koinly

We know that if you’re an active investor, you’re probably trading large volumes and could have hundreds, if not thousands, of transactions. And now you’re asking, “How can I apply all these rules with all this data?”

That’s exactly why we developed Koinly, a sophisticated crypto tax software tool that can reliably do all the calculations for you. Koinly supports the share pooling cost basis method for UK individuals and for companies. You can find this in settings.

Koinly automatically applies Same-Day, 30-Day, and Section 104 rules, calculates the correct basis for every transaction, calculates your capital gains/losses, and generates your HMRC crypto tax report.

If you’re looking for more, check out our expertly curated UK Crypto Tax Guide, which covers the tax rules for different types of crypto transactions as well as ways to reduce your taxes.