Chapter CRYPTO22150

Record NumberCRYPTO22150
Published date30 March 2021

When a person calculates their gains/losses from the disposal of tokens, not all costs are allowable as a deduction.

Section 38 of the Taxation of Chargeable Gains Act (TCGA) 1992 provides for the types of costs which can be deducted. HMRC’s view is that these include:

  • the consideration (in pound sterling) originally paid for the asset
  • transaction fees paid for having the transaction included on the distributed ledger
  • advertising for a purchaser or a vendor
  • professional costs to draw up a contract for the acquisition or disposal of the tokens
  • costs of making a valuation or apportionment to be able to calculate gains or losses

Any costs deducted against profits for Income Tax, see CG10260, are not allowable as a deduction for Capital Gains Tax.

Exchange Fees

It is common for people to use an exchange to perform transactions, as explained at CRYPTO10250. Some fees charged by exchanges are allowable, but not all of them. Below is a list of common fees charged by exchanges and whether they satisfy section 38 TCGA 1992:

Situation in which an exchange fee may be incurred Treatment of fee for section 38 TCGA 1992
Exchange (swap) sterling for a fiat currency other than sterling Section 38(1)(a) - allowable as a cost of acquiring the fiat currency other than sterling
Exchange (swap) fiat currency other than sterling for sterling Section 38(1)(c) - allowable as an incidental cost of disposing of the fiat currency other than sterling
Deposit sterling with an exchange Sterling isn’t an asset for CGT purposes so not an allowable cost
Deposit fiat currency other than sterling with an exchange The depositor retains beneficial ownership of the fiat currency other than sterling so there’s no acquisition or disposal that the costs can be attributed to
Use sterling to purchase tokens Section 38(1)(a) - allowable as a cost of acquiring the tokens
Use fiat currency other than sterling to purchase tokens Section 38(1)(a) - allowable as a cost of acquiring the tokens
Exchange (swap) token A for token B See below
Dispose of tokens for sterling Section 38(1)(c) - allowable as an incidental cost of disposing of the tokens
Dispose of tokens for fiat currency other than sterling Section 38(1)(c) - allowable as an incidental cost of disposing of the tokens
Withdraw sterling from the exchange Sterling isn’t an asset for CGT purposes so not an allowable cost
Withdraw fiat currency other than sterling
...

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