Crypto Cost Basis Methods UK: Section 104, FIFO and LIFO Compared

If you have used a US-focused tax tool (Koinly's US settings, CoinTracker, ZenLedger) you may have run reports using FIFO or LIFO. None of these are valid for UK Self Assessment. HMRC mandates a single approach: Section 104 pooling, layered with the same-day and 30-day rules. Picking the wrong method is one of the most common reasons calculated gains diverge from what HMRC expects.

What HMRC actually requires

For each separate cryptoasset (BTC, ETH, SOL, etc.), you maintain a single pooled cost basis. Every acquisition adds to the pool — both the quantity and the GBP cost. Every disposal reduces the pool proportionally. Your gain on a disposal is the proceeds minus a slice of the pool equal to the proportion of tokens you sold.

But before you touch the pool, you apply two matching rules: same-day disposals are matched first against any acquisitions on the same day, and 30-day disposals are matched against any acquisitions in the next 30 days (the bed-and-breakfast rule). Only after those have been processed do you draw from the Section 104 pool.

How FIFO would differ

FIFO ("first in, first out") matches each disposal against the oldest unsold acquisition. In a rising market, FIFO produces larger taxable gains than Section 104 because old, cheap purchases get matched first. In a falling market it does the opposite. Some US states allow FIFO. The UK does not — even if you write it on your return clearly, HMRC will recompute under Section 104 and assess the difference.

How LIFO would differ

LIFO ("last in, first out") matches each disposal against the most recent acquisition. It tends to minimise gains in a rising market because expensive recent buys cancel out expensive sales. The US permits LIFO if you document it. The UK does not — same answer as FIFO.

Why pooling exists

HMRC introduced share-pooling rules in 1965 (Finance Act 1965) for stocks, then extended them to crypto in the Cryptoassets Manual. The policy logic is to prevent cherry-picking: if you held BTC bought at £200 and BTC bought at £20,000, FIFO and LIFO would let you choose your gain. Pooling makes the average cost mandatory.

Specific identification

Some countries allow you to nominate exactly which lot you are selling (Spec ID). The UK does not. Even if your exchange shows you a specific buy you are selling, HMRC ignores that and applies pooling.

What about "wallet by wallet"?

A common myth is that each wallet has its own pool. It does not. HMRC pools across all wallets, exchanges, and chains for the same cryptoasset. Your Coinbase ETH and your MetaMask ETH share one Section 104 pool. This is one reason a multi-chain tool that consolidates everything is more accurate than per-exchange exports.

Practical advice

Use a UK-specific tool that defaults to Section 104. Verify its same-day and 30-day matching are active. Export the working — every UK tax officer asking for evidence of pool maths expects to see the running pool quantities and GBP cost.

CryptoLens applies the full HMRC matching order — same-day, 30-day, then Section 104 — to every disposal across every chain and wallet you scan, and exports the pool history so HMRC can verify the workings.