If you’ve ever traded the same crypto asset more than once, you’ve probably wondered—how do I figure out the actual profit I made? With fluctuating prices and multiple transactions, calculating capital gains can be tricky. That’s precisely why HMRC uses share pooling for crypto investors in the UK.
Share pooling, officially known as the Section 104 rule, helps simplify your tax calculations by averaging the cost of all identical tokens you’ve purchased.
This method isn’t just a suggestion, it’s a requirement. Whether you’re casually buying and holding or actively trading, understanding how share pooling works is essential for accurate tax reporting. In this guide, we’ll walk you through how the method works, when special rules apply, and how to apply it so you can make the process much easier. So let’s begin!
Read More: Crypto Tax In The UK: The Ultimate Guide
What Is Share Pooling in Crypto?
As per the UK crypto tax rules, the HMRC uses a method called share pooling, also known as the Section 104 rule, to simplify how UK investors calculate capital gains on identical crypto assets. This rule treats all units of the same token you acquire at different times and prices as a single pool. Instead of tracking individual assets, you calculate an average cost basis for each pool.
So, if you have multiple purchases of Bitcoin or Ethereum made at different values, you add together the total cost of those tokens and divide it by the number of tokens held. This gives you the average cost per unit, which you then use to work out your capital gain or loss whenever you dispose of those assets.
Example of How Share Pooling Works
Let’s say you purchased 3 ETH at different times and prices:
- 1 ETH at £2,000
- 1 ETH at £800
- 1 ETH at £1,500
You would add up the total cost of all ETH purchased:
£2,000 + £800 + £1,500 = £4,300.
Then divide it by the total ETH held, which is 3.
£4,300 / 3 = £1,433
This gives you an average cost basis of £1,433 per ETH.
If you later sell or trade one ETH, this £1,433 is the figure you’ll use to calculate your gain or loss.
Note: Share pooling is applied individually to each type of crypto asset. This means your ETH has its pool, your BTC has another, and so on. You cannot mix assets from different pools when calculating your average cost. Each pool is updated as you buy or sell tokens, and the average cost basis is adjusted accordingly. |
Why HMRC Uses Share Pooling for Crypto Cost Basis?
Here’s why HMRC uses share pooling as an accounting method to calculate crypto cost basis:
Designed to Simplify Tax Reporting
Crypto transactions can happen quickly and in large volumes. With prices constantly changing, it becomes difficult to keep track of individual purchases and their associated costs.
HMRC introduced the share pooling method to streamline the process of calculating gains and losses. Rather than identifying each token’s acquisition and disposal value, investors use an average cost across all identical tokens in a given asset pool.
This approach removes the need for complex tracking of every trade, especially for those who frequently buy, sell, or swap assets across multiple exchanges. Share pooling allows you to calculate capital gains in a way that is consistent and manageable.
Preventing Tax Manipulation
Share pooling also plays a key role in preventing tax avoidance. Without it, investors could choose to report disposals in a way that maximises losses and minimises gains, reducing their tax liability unfairly.
For example, if a person holds Bitcoin at £1,000 and £5,000, and chooses to sell the lower-cost token first, it might generate a higher capital gain.
By using the average cost basis, HMRC ensures that investors report their gains using a fair and uniform method. This limits strategies such as wash sales and bed and breakfasting, which are designed to create artificial losses or reset cost bases.
Suitable for Fungible Assets Like Crypto
Another reason HMRC applies share pooling is that crypto tokens are considered fungible assets. This means one unit of a cryptocurrency is identical to another.
Just like shares in a company, individual tokens of the same type cannot be distinguished from one another. This makes them ideal for the pooling approach, as they do not have unique identifiers that require individual tracking.
Together, these reasons show why HMRC mandates share pooling for crypto transactions. It simplifies reporting, ensures tax fairness, and aligns with the nature of digital assets.
Three Rules to Calculate Crypto Gains Correctly
HMRC requires you to apply three specific cost basis rules, the Same-Day Rule, the 30-Day Rule, and the Section 104 Rule, to calculate capital gains from your crypto transactions. These rules must be applied to ensure accurate and compliant reporting.
Same-Day Rule
According to HMRC’s guidelines, if you dispose of a crypto asset and acquire the same asset on the same day, you must match the disposal with the acquisition from that day. You cannot use the average cost basis from your Section 104 pool in this case. Instead, you calculate your gain or loss using the cost of the same-day purchase.
Example:
- You sell 1.5 ETH on 10 March 2025 for £3,000
- You also buy 1.5 ETH later that day for £2,800
Since both the sale and purchase occurred on the same day, the Same-Day Rule applies
Explanation:
The gain is calculated based on the same-day purchase cost. You’ll pay Capital Gains Tax on a gain of £200 (£3,000 – £2,800), not based on the average from your Section 104 pool.
30-Day Rule (Bed and Breakfasting)
If you sell a crypto asset and repurchase it within 30 days, this rule requires you to match the disposal with the repurchased asset’s cost basis, preventing you from generating a tax loss while keeping your investment position intact.
Example:
- On 2 June 2024, you sell 2,000 XRP for £1,000
- On 20 June 2024, you buy 2,000 XRP again for £1,200
The repurchase occurs within 30 days, so the 30-Day Rule applies
Explanation:
Your disposal must be matched to the £1,200 repurchase. That creates a capital loss of £200, which you can report under CGT.
Note: You cannot use the Section 104 pool in this scenario.
Section 104 Rule (Share Pooling)
This rule applies when neither the Same-Day nor the 30-Day Rule is triggered. You group all units of the same crypto asset and calculate an average cost basis. This becomes your reference for any future disposal gains or losses.
Example:
Let’s say you carried out the following Bitcoin transactions:
- On 1 January, you bought 1 BTC for £10,000
- On 1 February, you bought 1 BTC for £20,000
- On 1 March, you bought 1 BTC for £35,000
Your total holding is now 3 BTC at a total cost of £65,000
On 1 May, you decide to sell 1.5 BTC for £40,000
Explanation:
- Calculate average cost basis per BTC: £65,000 (total cost) ÷ 3 BTC = £21,667 per BTC
- Cost of 1.5 BTC sold: 1.5 BTC × £21,667 = £32,500
- Proceeds from sale: You sold 1.5 BTC for £40,000
- Capital Gain: £40,000 (sale proceeds) – £32,500 (cost basis) = £7,500 capital gain
Note: The Section 104 Rule treats all BTC held as a pooled asset. The gain from this disposal is calculated using the average cost per BTC, not the specific price at which individual units were purchased. |
Read More: Personal Income Tax On Crypto In The UK
How to Apply Share Pooling to Your Crypto Transactions?
Applying HMRC’s share pooling rule to your crypto holdings may seem technical at first, but once broken down, it’s a structured and repeatable process. The key is to maintain updated records of each crypto purchase so you can track your average cost basis accurately. This will help you calculate capital gains or losses correctly each time you dispose of any part of your holdings.
Step 1: Maintain a Separate Pool for Each Token
HMRC requires that you maintain a separate Section 104 pool for each type of crypto asset. For example, Bitcoin, Ethereum, and Solana should all have individual pools. You cannot combine tokens across different cryptocurrencies when calculating your average cost basis.
Step 2: Update the Pool Every Time You Buy More Crypto
Each time you purchase more of the same token, you must add the number of units and the total cost to your existing pool. This updates the average cost per unit. Here’s how:
- Add the cost of the newly purchased tokens to the existing pool’s total cost
- Add the quantity of tokens to the total units held
- Divide the new total cost by the new total quantity to get the updated average cost
Step 3: Calculate Capital Gains at the Time of Disposal
Whenever you sell, trade, spend, or gift your crypto (except to a spouse or civil partner), you must calculate the capital gain or loss using the updated average cost basis. Multiply the number of tokens disposed by the average cost, then subtract this figure from the sale proceeds.
This calculation should be repeated for each disposal event, ensuring you always refer to the updated pool value post-transaction.
Step 4: Apply Same-Day and 30-Day Rules First
Before you use the Section 104 pool, always check if the Same-Day Rule or 30-Day Rule applies. If either rule applies to the transaction, you must use that rule first. Only the remaining quantity not covered by those rules should be matched with the Section 104 pool.
Read More: How To Save Crypto Taxes In The UK
Common Mistakes in Share Pooling for Crypto
Although HMRC’s share pooling method is intended to simplify crypto tax reporting, many investors make avoidable errors that lead to misreporting or penalties. Understanding these common mistakes can help you stay compliant and accurate in your capital gains calculations.
Ignoring the Same-Day and 30-Day Rules
One of the most frequent errors is jumping straight to the Section 104 pool without checking if the Same-Day Rule or 30-Day Rule applies. HMRC requires these rules to be applied in strict order before using share pooling.
If you dispose of crypto and buy it again on the same day or within 30 days, failing to account for these transactions separately will distort your cost basis and result in incorrect capital gains reporting.
Combining Different Crypto Assets in a Single Pool
Another mistake is averaging the cost basis across different tokens like Bitcoin and Ethereum in one pool. HMRC clearly states that each token type must have its own Section 104 pool. Pooling unrelated crypto assets together is not compliant and can significantly affect your gain or loss calculations.
Not Updating the Pool After Every Purchase
Investors often forget to update the Section 104 pool immediately after each crypto purchase. This oversight leads to outdated average cost calculations when disposals occur. Every new acquisition must be added to the total cost and quantity to maintain an accurate average cost for future calculations.
Using the Wrong Disposal Proceeds
Some users mistakenly calculate gains using the wrong disposal value, such as the historical price instead of the actual sale price in GBP at the time of disposal. HMRC requires you to use the fair market value in GBP at the time of disposal, not the price in another cryptocurrency or exchange rate at the time of purchase.
Poor Record-Keeping
Accurate record-keeping is essential when applying share pooling. If you fail to keep complete records of purchase dates, prices, and quantities, it becomes nearly impossible to calculate the correct average cost. This is especially important for high-frequency traders or those using multiple exchanges. To ease record-keeping, you can use tools like KoinX. It automatically stores all your crypto transactions and generates an accurate tax report.
How KoinX Makes Share Pooling Easy?
Understanding HMRC’s share pooling rules can be challenging, especially when you’re dealing with hundreds of crypto transactions spread across various platforms. That’s where KoinX helps—offering automated tools tailored to make tax reporting easier and more accurate for UK crypto investors.
Seamless Wallet and Exchange Integration
KoinX allows users to connect their accounts from 300+ wallets, exchanges, and DeFi platforms in just a few clicks. Whether you use custodial exchanges or non-custodial wallets, KoinX supports CSV uploads and API integrations to auto-import your complete transaction history. This saves time and removes the risk of manual entry errors that often lead to incorrect tax filings.
Automatic Transaction Categorisation
Once your data is imported, KoinX automatically classifies your transactions by type, such as disposals, income from staking, mining rewards, airdrops, or gifts. This intelligent classification ensures that each transaction is mapped to the correct tax category, so your capital gains and income are calculated accurately and in compliance with HMRC regulations.
Fully HMRC-Compliant Share Pooling Calculations
KoinX applies all three of HMRC’s mandatory rules: the Same-Day Rule, the 30-Day Rule, and the Section 104 Rule. It processes them in the correct sequence to determine the right cost basis for each disposal. This helps eliminate errors and ensures you always report the correct gains or losses from your crypto activity.
Generates UK-specific tax Reports Instantly
With KoinX, you can generate tax reports tailored for the UK, including the HMRC-compliant Capital Gains Summary. These reports are formatted for direct submission or for sharing with your accountant, making the filing process smooth and stress-free.
Start automating your crypto tax calculations today by connecting your wallets to KoinX, no spreadsheets, no stress.
Conclusion
Understanding and applying HMRC’s share pooling rules is essential for accurate crypto tax reporting in the UK. From tracking average cost basis to applying the correct order of tax rules, every detail matters when calculating your capital gains. While the process can seem complex, staying compliant doesn’t have to be stressful.
With KoinX, you can automate every aspect of your crypto tax calculations—saving time, reducing errors, and ensuring full HMRC compliance. Join KoinX today to simplify your crypto taxes and file with confidence.
Frequently Asked Questions
Do All Crypto Transactions Use Share Pooling in the UK?
No, not all transactions immediately use share pooling. HMRC requires you to apply the Same-Day Rule and the 30-Day Rule first. Only the remaining portion of a disposal that isn’t matched by these two rules should be calculated using the share pooling method. This ensures that each disposal uses the most appropriate and accurate cost basis under UK tax rules.
What Happens If I Don’t Follow the 30-Day Rule?
Failing to apply the 30-Day Rule can lead to incorrect capital gains calculations. HMRC requires that crypto repurchased within 30 days of a sale must use the cost of those new tokens as the basis for gain or loss, not the average from your pool. Ignoring this rule could result in underreporting or overreporting gains, which may lead to penalties or tax reassessments by HMRC.
Can I Use FIFO Instead of Share Pooling?
No, FIFO is not accepted by HMRC for crypto tax reporting. The UK mandates the use of the share pooling method, also known as the Section 104 rule, for calculating cost basis, after applying the Same-Day and 30-Day Rules. Using FIFO or other international methods may lead to non-compliance and incorrect reporting on your Self Assessment tax return.
How Does Share Pooling Affect Crypto Loss Harvesting?
Share pooling can limit your ability to realise capital losses quickly. Because it averages the cost of all similar tokens in a pool, selling a portion at a lower price may not always result in a loss, depending on your overall cost basis. You’ll also need to ensure the 30-Day Rule doesn’t disqualify your losses if you repurchase the asset soon after selling.
