FIFO vs Pooling — Why UK Tax Rules Don’t Work Like US Rules

If you’ve ever Googled “how to calculate capital gains on shares,” most results assume you’re American. They’ll tell you about FIFO, LIFO, and specific identification. None of that applies in the UK. Using the wrong method is one of the most common CGT mistakes — and it can produce wildly different results.

How the US does it

In the US, investors can choose their cost basis method. The most common is FIFO (first-in, first-out) — when you sell shares, the oldest ones are treated as sold first. Some investors use specific identification — they choose exactly which lot to sell, often picking the highest-cost lot to minimise gains. The IRS allows this flexibility under IRC §1012.

How the UK does it

HMRC gives you no choice. The matching rules are mandatory, applied in a fixed order described in Helpsheet HS284:

1. Same-day acquisitions (TCGA s.105)
2. Acquisitions in the next 30 days — the bed and breakfast rule (TCGA s.106A)
3. The Section 104 pool — weighted average cost (TCGA s.104)

There’s no FIFO. There’s no choosing which lot to sell. The pool averages everything together.

Why the numbers differ

Consider this scenario:

FIFO (US method): Sell the oldest shares (Jan 2023 at £5). Gain = £15 − £5 = £10 per share. Total gain: £1,000.

S104 pool (UK method): Pool has 200 shares, total cost £1,700, average £8.50. Sell 100 at £15. Cost = 100 × £8.50. Gain: £650.

That’s a 35% difference in the taxable gain — from the same trades. At 18% CGT, that’s £63 more tax under FIFO. The difference can be even more extreme with volatile stocks where purchase prices vary widely.

Why it matters for UK investors on US brokers

If you use Robinhood or Tastytrade, their built-in gain/loss reports use FIFO (or specific identification). These numbers are wrong for your UK return. See our detailed UK vs US comparison.

You cannot use the 1099-B figures from a US broker on your SA108. You must recalculate from scratch using HMRC rules. This is non-negotiable — HMRC’s method is mandatory, as the Capital Gains Manual at CG51560 makes clear.

Can FIFO ever be better for the taxpayer?

Sometimes. If your earliest purchases were at a high price (you bought the top and the price dropped, then recovered), FIFO produces a smaller gain than pooling. But you don’t get to choose — the UK method is the UK method, regardless of which produces a smaller tax bill.

The only legitimate way to influence your cost basis in the UK is through the bed and ISA or bed and spouse strategies, which reset the cost basis within the rules.

Get it right automatically

TaxBull applies HMRC’s pooling rules — not FIFO. Upload your broker CSV and get the correct UK calculation, with a full audit trail showing the pool state after every transaction. It’s the difference between filing correctly and filing a return that uses the wrong country’s rules.

This is general information. The matching rules are set by legislation and are mandatory for all UK taxpayers.