Calculating the cost basis of your crypto transactions is a key step to avoid overpaying on your capital gains taxes in the UK! Discover how to accurately track your crypto trades, calculate the cost basis with different methods, estimate how much capital gains you’ll pay on your UK crypto taxes, and more!
Key Takeaways about Crypto Cost Basis Methods in the UK
- Correctly determining the cost basis of an asset is crucial to calculating the right amount of capital gains in a trade;
- The cost basis of a crypto transaction is how much you paid to acquire that cryptocurrency (including the fees to make the purchase);
- In the UK, the correct way to determine the cost basis of an asset when selling is the share pooling accounting method;
- There are additional rules in the UK regarding cost basis, including the Same-Day rule, Bed and Breakfasting rule, and the Section 104 rule;
- The easiest way to calculate the cost basis of your crypto trades is with tax software like CoinTracking.
What is a Cost Basis for Cryptocurrencies?
The cost basis of a cryptocurrency or another asset (e.g., stock) is the value you paid to acquire that asset at that time. Put simply, it’s how much you paid to have that asset. Why is this important? When you calculate capital gains from a transaction (crypto or not), you need to deduct the cost basis from the sales proceeds.
How to Calculate the Cost Basis for Crypto
The cost basis for crypto is the amount that you paid to acquire the asset plus any fees or commissions. Buying crypto on centralized exchanges like Binance, Coinbase, or Kraken is easy and secure, but those companies need to charge a transaction fee to provide that service. If you’re a beginner investor, you’ll probably fall under their first fee tiers. You can expect to pay anywhere from 0.1% to 0.02% on spot transactions (e.g., buying Bitcoin with Pounds or Euros). If you trade large amounts, these transaction fees can eventually become marginal.
Here’s an example of how to calculate the cost basis for crypto:
Asset: Bitcoin (BTC)
Purchase price: £65,000
Amount purchased: 0.5 BTC
Transaction fee: 0.1%
Cost Basis: (Amount purchased) + (transaction fee)
(0.5 BTC * £65,000) + (0.5 BTC*£65,000*0.1%)
(£32,500) + (£32.5)= £32,532.5
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Capital Gains Tax (CGT) and Cost Basis Factor
Capital gains taxes are the direct result of calculating the right cost basis in any transaction. The gain or loss in a crypto transaction is a function of deducting the cost basis of that trade from its sale amount.
Here’s an example: If you bought £10,000 of an asset and it cost you £30 to acquire it, your cost basis is £10,030. In your gains calculations, you need to deduct that cost basis from the total sales proceeds. If you sold that asset for £12,000, that’s your sale proceeds. In that case, your capital gain would be £1,970 (£12,000 - £10,030).
Share Pooling for Crypto Taxes
The UK uses a shared pooling accounting system for cryptocurrencies, setting a specific way to calculate the cost basis on transactions, directly influencing capital gains on each transaction. Countries like the US have accounting systems like First-In, First-Out (FIFO) or Last-In, Last-Out (LIFO) as the default for determining cost basis. However, it is more difficult to use these methods because you need to track all the batches of the same asset that you bought (at different prices and times). The UK opted for a simpler method, a shared pooling approach, resulting in an average cost per unit to calculate capital gains/losses.
Average Cost per Unit
The UK tax authorities opted to share all the batches of transactions and reach an average cost per unit as the default way to determine the cost basis of a sale.
Here’s an example.
Asset: Bitcoin (BTC)
Date of Acquisition 1: 01/03/2024
Amount of Acquisition 1: 0.5 BTC
Price of BTC at Date 1: £50,000
Date of Acquisition 2: 01/08/2024
Amount of Acquisition 2: 0.5 BTC
Price of BTC at Date 2: £60,000
Average cost per unit = (£50,000 + £60,000) / 2 = £55,000
Cost Basis Rules
Here are the cost basis rules in the UK:
The Same-Day Rule
When you buy and sell the same asset within the same day, the cost basis for that sale will be the one of that day and not any of the previous times when you bought that asset. The HMRC has this rule for any asset, including cryptocurrencies, to avoid investors taking advantage of deducting such short-term capital losses.
Same-Day Rule Cost Basis Example
Asset: Bitcoin (BTC)
Date of Acquisition 1: 01/03/2024
Amount of Acquisition 1: 1 BTC
Price of BTC at Date 1: £50,000
Date of Acquisition 2: 01/08/2024
Amount of Acquisition 2: 1 BTC
Price of BTC at Date 2: £60,000
Date of Sale 1: 01/08/2024
Amount of Sale 1: 1 BTC
Price of BTC at Sale 1: £60,500
In this case, the cost basis is the one from the “Date of Acquisition 2,” the £60,000 instead of the £50,000 from the first acquisition because the sale was on the same day as “Acquisition 2”.
The 30-Day Rule
The 30-Day rule or the Bed and Breakfasting Rule states that if investors sell an asset and buy it back within 30 days, the cost basis will come from the sale.
30-Day Rule Cost Basis Example
Asset: Bitcoin (BTC)
Date of Acquisition 1: 01/05/2024
Amount of Acquisition 1: 1 BTC
Price of BTC at Acquisition 1: £50,000
Date of Sale 1: 01/08/2024
Amount of Sale 1: 1 BTC
Price of BTC at Sale 1: £60,000
Date of Acquisition 2: 05/08/2024
Amount of Acquisition 2: 1 BTC
Price of BTC at Acquisition 2: £62,000
The cost basis of the asset in “Sale 1” will be £62,000 and not £50,000 because of the 30-Day Sale Rule, as “Acquisition 2” occurred within 30 days of “Sale 1.”
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Section 104 Pool
Section 104 Pool is an additional rule for the calculation of cost basis in the UK that averages the cost of purchase of assets bought at different times and prices, simplifying the process for investors with a lot of trades.
Section 104 Pool Cost Basis Example
Asset: Bitcoin (BTC)
Date of Acquisition 1: 01/02/2024
Amount of Acquisition 1: 1 BTC
Price of BTC at Acquisition 1: £50,000
Date of Acquisition 2: 02/04/2024
Amount of Acquisition 2: 1 BTC
Price of BTC at Acquisition 2: £52,000
Date of Acquisition 3: 05/05/2024
Amount of Acquisition 3: 1 BTC
Price of BTC at Acquisition 3: £57,000
Date of Sale 1: 01/09/2024
Amount of Sale 1: 3 BTC
Price of BTC at Sale 1: £60,000
Cost basis = (£50,000 + £52,000 + £57,000) / 3 = £53,000
The cost basis of “Sale 1” is the average cost of BTC from all the past purchases.
Calculate your Crypto Cost Basis Easily with CoinTracking
If you’re a crypto investor in the UK with purchases of multiple crypto assets, you will find a challenge in manually calculating cost basis, especially with large portfolios, due to the shared pool accounting system. The easiest way to automate that process is to import your trades with the help of crypto tax software like CoinTracking and automatically determine the cost basis of trades. After determining the right cost basis, CoinTracking will calculate the correct capital gains on each trade and generate the right tax reports for the HMRC.
CoinTracking Full-Service can help you with this process, offering a hands-off approach to UK crypto taxes with our team of experts!
What Cost Basis does HMRC Allow for Crypto Taxes?
The HMRC allows crypto investors to employ three methods to calculate the cost basis of each transaction. Here are the methods you can employ (in this order):
- Same-Day Rule: This rule applies if you buy and sell the same cryptocurrency on the same day;
- Bed and Breakfasting Rule: This rule applies if you sell and buy back the same cryptocurrency within 30 days;
- Section 104 Rule: If the first two rules don’t apply, you can use the Section 104 Rule, calculating the cost basis as the average purchase value of a pool of assets.
Summary of Key Points
TL;DR about UK crypto cost basis methods in 2025
- The HMRC has specific rules for calculating cost basis in the UK, impacting your capital gain taxes;
- As a general rule, you should calculate the cost basis of an asset by averaging the cost of acquiring it through a shared pooling system;
- There are some restrictions like the Same-Day Rule and the Bed and Breakfast Rule for short-term transactions (within a day and 30 days, respectively);
- The easiest way to automatically determine all the cost basis and gains/losses from your crypto transactions is with crypto tax tools like CoinTracking.
FAQ about Crypto Cost Basis in the UK
How can I Calculate Cost Basis in the UK?
You can calculate the cost basis of a transaction by adding the amount you paid to acquire that asset and the costs/fees associated with it.
What Cost Basis Should I Use for Crypto?
The UK uses a shared pool accounting system to calculate cost basis, with additional rules for specific cases (e.g., Same-Day, Bed and Breakfasting, and Section 104).
What is the 30-Day Rule for Crypto in the UK?
The 30-Day Rule applies when investors buy an asset within 30 days of selling that same asset.
How does HMRC's Pooling Rule Work for Cryptocurrencies?
The HMRC applies Shared Pool Accounting to calculate cost basis, assuming an average cost for transactions.
What's the Difference Between the Same-Day and 30-Day Rules?
The Same-Day Rule applies to assets bought and sold on the same day, while the 30-Day Rule applies to assets bought within 30 days of selling it.
What is the Bed and Breakfasting Rule for Cryptocurrency Taxation?
The Bed and Breakfasting Rule is the same as the 30-Day Rule, applying to cases where investors buy assets within 30 days of selling them.
Conclusion on Crypto Cost Basis in the UK
It’s fundamental to accurately calculate your cost basis in any transaction to avoid overpaying capital gains taxes. The most straightforward method to calculate your cost basis is to deduct the Fair Market Value (plus transaction fees) of the asset from its sales proceeds (total amount received when you sell the asset). If you trade a lot of different crypto assets, you’ll save a lot of time and taxes by automatically determining the cost basis of those transactions and the respective capital gains. CoinTracking is the best crypto tax calculator which automatically does all those steps while generating fully compliant tax reports for the UK.
Disclaimer
The information provided in this article is for educational and informational purposes only. It is not intended as financial, investment, tax, or legal advice. Cryptocurrency investments are highly volatile and carry significant risks. Before investing in cryptocurrencies, conduct thorough research, consult with a financial advisor, and ensure you understand the risks involved. The author and publisher are not responsible for any financial losses or damages that may occur from following the information presented in this article. Always use caution and make informed decisions when dealing with cryptocurrencies.
