In the UK, there are three possible cashout methods you can use and they differentiate depending on the timeframe your transactions took place.
Below a detailed explanation of each one:
Same-Day rule: when a user buys and sells coins during the same solar day, the calculation of gains/losses is based on the cost basis and the sale price of that given day.
If a user buys and sells the same coin/token multiple times within the same day, all the single buying transactions are treated as if they were a single one, the same criteria applies to all the selling transactions.
In case of transactions made at different times in the day both cost basis and sale price are calculated as a weighted average.
Example:
User A buys 0.5BTC at 9am at a cost of 10,000£ (BTC price 20,000£)
User A buys 1BTC at 2pm at a cost of 19,000£ (BTC price 19,000£)
User A sells 1BTC at 4pm at a price of 20,500£ (BTC price 20,500£)
User A sells 0.5BTC at 7pm at a price of 10,500£ (BTC price 21,000£)
Average cost basis: [(20,000*0.5)+(19,000*1)]/1.5 = 19,333.33£
Average sale price: [(20,500*1)+(21,000*0.5)]/1.5 = 20,666.67£
Gain/loss calculation: (1.5*20,666.67)-(1.5*19,333.33) = 2,000.02£
If you’re selling more than you bought on that day, the exceeding part must be calculated with the next rule.
Bed and Breakfasting rule: when a user sells and then repurchases the same coins/tokens within the next 30 days, the calculation of gains/losses is based on the cost basis of coins/tokens bought within this month.
If a user buys & sells tokens within a 30 day period, the method used is FIFO (First In First Out), not the cost basis from your section 104 pool.
Example:
User A sells 0.5BTC on 5th of July at a price of 10,000£ (BTC price 20,000£)
User A buys 1BTC on 10th of July at a cost of 19,000£ (BTC price 19,000£)
User A buys 1BTC on 12th of July at a cost of 21,000£ (BTC price 21,000£)
Gain/loss calculation is based on the FIFO (transaction of July 10th):
(0.5*20,000)-(0.5*19,000) = 500£
If you’re selling more than you bought within that month, the exceeding part must be calculated with the final rule.
Section 104 rule: If the above two rules don’t apply to any of your crypto transactions, you need to use this cost basis method when calculating your crypto taxes. This works like the ACB (average cost basis) method in that you calculate an average cost basis for a pool of assets by adding up the total amount paid for all assets and dividing it by the total amount of coins/tokens held.
Example:
User A buys 1ETH on 21st of May at a cost of 1,500£ (ETH price 1,500£)
User A buys 0.25ETH on 12th of June at a cost of 250£ (ETH price 1,000£)
User A buys 2ETH on 4th of July at a cost of 2,200£ (ETH price 1,100£)
ETH POOL
3.25ETH with total cost 3,950.00£ (ETH average price 1,215.38)
User A sells 0.25ETH on 2nd of August at a price of 450£ (ETH price 1,800£)
CAPITAL GAIN/LOSS
(0.25*1,800)-(0.25*1,215.38) = 146.16£
NEW ETH POOL
3ETH (ETH average price 1,215.38£)
User A sells 2ETH on 9th of September at a price of 2,800£ (ETH price 1,400£)
CAPITAL GAIN/LOSS
(2*1,400)-(2*1,215.38) = 369.24£
NEW ETH POOL
1ETH (ETH avg price 1,215.38£)
User A buys 1ETH on 13th of October at a price of 1,200£ (ETH price 1,200£)
NEW ETH POOL
2ETH with total cost of 2,415.38 (ETH average price 1,207.69£)
User A sells 1.5 ETH on 16th of November at a price of 1,650£ (ETH price 1,100£)
CAPITAL GAIN/LOSS
(1.5*1,100)-(1.5*1,207.69) = -161.54£NEW ETH POOL
0.5 ETH with avg price 1,207.69£
INTERACTION OF ALL THE RULES
All rules can be applied to the same transaction (from Same Day to 30-Day to Pool) if the amounts require so.
Here's an example to clarify.
User A buys 2BTC on Jan 10th (price 22,000£ - cost 44,000£)
User A buys 2BTC on Feb 2nd (price 21,000£ - cost 42,000£)
User A buys 1BTC on Sept 15th (price 20,000£ - cost 20,000£)
User A sells 3BTC on Sept 15th (price 21,000£ - profit 63,000£)
User A buys 1BTC on Sept 22nd (price 19,000£ - cost 19,000£)
User A buys 0.5BTC on Sept 30th (price 18,000£ - cost 9,000£)
How do we calculate the capital gain/loss on the sale of Sept 15th?
Check if Same Day Rule can be applied
there is a purchase of BTC on the same day
Capital Gain on the Same Day is
(1*21,000)-(1*20,000) = 1,000£We sold 3BTC but bought just 1BTC on the same day --> we need to apply other rules for the remaining part
Check if 30-Days Rule can be applied
There are 2 BTC purchases on the 30 days following the date of the sale
Capital Gain (FIFO) on the 1st purchase (Sept 22nd)
(1*21,000)-(1*19.000) = 2,000£
We sold 3BTC but bought 2BTC so we need more transactions
30 Days Rule can also be applied on the purchase of Sept 30th
Capital Gain (FIFO)
(0.5*21,000)-(0.5*18,000) = 1,500£We sold 3BTC but Same Day Rule and 30-Days Rule allowed a total of 2.5BTC to be reconciled
We must use the Section 104 Pool to calculate Capital Gain/Loss on the remaining 0.5BTC
BTC POOL Average Price is
[(2*22,000)+(2*21,000)]/4 = 21,500£Capital Gain on the last 0.5BTC is
(0.5*21,000)-(0.5*21,500) = -250£
TOTAL CAPITAL GAIN is
1,000+2,000+1,500-250 = 4,250£