Victoria’s pool, as HMRC draws it
What does a pool look like on paper? In the first pooling example of HMRC’s Cryptoassets Manual, Victoria owns 100 units of token A bought for £1,000. On September 18 she buys 50 more for £125,000, and from then on she holds one pool, 150 tokens with an allowable cost of £126,000.
On December 1 she sells 50 tokens for £300,000. A third of the pool goes with them, so the cost she deducts is £42,000 and her gain is £258,000. What remains is a pool of 100 tokens costing £84,000, ready for the next purchase or sale.
The same sale under first in, first out
Run that sale through a FIFO rule instead. The answer moves a long way. By our arithmetic, the 50 tokens sold would come from the first 100, bought at £10 each, so the cost would be £500 and the gain £299,500.
Pooling cuts the gain by £41,500 in this case, because it spreads the expensive September purchase across every token Victoria holds. Had the early tokens been the expensive ones, pooling would have raised the gain instead.
What the statute says
The 1992 Act, in section 104, treats securities of the same class held in the same capacity as “indistinguishable parts of a single asset,” which grows or shrinks as units are bought and sold. The Act’s own name for the result is a “section 104 holding,” though HMRC notes that it is commonly called a section 104 pool.
Tokens fit through the second limb of the definition, which covers assets “of a nature to be dealt in without identifying the particular assets disposed of or acquired.” Each type gets its own pool, so bitcoin, ether and litecoin make three. NFTs can be told apart, which keeps them out of pooling altogether.
The mistake of a plain average
The pool is the last stop in a sale’s matching order, after same-day purchases and then purchases made within the following 30 days, the rule behind the UK’s treatment of a wash sale. Tokens matched that way, HMRC’s pooling page says, “don’t go into the section 104 pool.”
A spreadsheet that averages every purchase as it happens can therefore drift from the true pooled cost. Swaps make it worse, since HMRC’s seventh example shows one crypto-to-crypto trade changing two pools at once.
Records that run for years
Records are the holder’s job. HMRC asks individuals to keep the amount spent on each type of token alongside each pool’s cost. They matter for years, because UK crypto tax on a sale today draws on a pooled cost that may go back to a holder’s first purchase.
This explains the term only and is not tax advice.