> For the complete documentation index, see [llms.txt](https://docs.recap.io/uk-tax-guide-for-individuals/llms.txt). Markdown versions of documentation pages are available by appending `.md` to page URLs; this page is available as [Markdown](https://docs.recap.io/uk-tax-guide-for-individuals/transaction-types/token-upgrades-swaps.md).

# Token Upgrades/Swaps

![](/files/qiHRKTc5LXTXNh7qTspm)

Here are three common scenarios arising for token upgrades/swaps. Let's use an example to consider the scenarios and their possible tax effect.

{% hint style="info" %}
Token A is upgraded to a newer version of that Token (let's say Token A v2). 
{% endhint %}

## **Airdropped upgrade**

The new Token A v2 will often be airdropped via a second smart contract.\
\
The original Token A may or may not continue to exist alongside the new Token A v2.

### Possible tax treatment

{% hint style="warning" %}
There is no specific HMRC guidance on the consequences of a token upgrade, but there is some guidance on transferring tokens between distributed ledgers at [CRYPTO22110](https://www.gov.uk/hmrc-internal-manuals/cryptoassets-manual/crypto22110). 

The specific circumstances of each occurrence need to be examined and it is recommended you seek [professional tax advice](https://www.wrightvigar.co.uk/services/crypto/) on the tax treatment.
{% endhint %}

It is possible the acquisition cost of the original Token A should apportioned between the original Token A and the new Token A v2, pro-rata, in accordance with the market value of each token at the date of the upgrade. 

If the original token becomes worthless at the date of the upgrade, then all of the acquisition cost will be moved over to the new token.

## Upgrade mechanism

You are required to send the original Token A to a certain address via a second smart contract. More often than not, the original Token A will get burned (destroyed). \
\
Under the second smart contract you receive the new Token A v2. 

### Possible tax treatment

{% hint style="warning" %}
There is no specific HMRC guidance on the consequences of a token upgrade, but there is some guidance on transferring tokens between distributed ledgers at [CRYPTO22110](https://www.gov.uk/hmrc-internal-manuals/cryptoassets-manual/crypto22110). 

The specific circumstances of each occurrence need to be examined and it is recommended you seek [professional tax advice](https://www.wrightvigar.co.uk/services/crypto/) on the tax treatment.
{% endhint %}

It is possible the acquisition cost of the original Token A will be moved over to the new token, since the original token no longer exists.

{% hint style="danger" %}
However it is possible HMRC may treat this as a disposal of the original token A for capital gains tax purposes.
{% endhint %}

## Redenomination upgrade

An alteration is made to the smart contract underlying the original Token A and it is also renamed Token A v2.

### Possible tax treatment

{% hint style="warning" %}
There is no specific HMRC guidance on the consequences of a token upgrade, but there is some guidance on transferring tokens between distributed ledgers at [CRYPTO22110](https://www.gov.uk/hmrc-internal-manuals/cryptoassets-manual/crypto22110). 

The specific circumstances of each occurrence need to be examined and it is recommended you seek [professional tax advice](https://www.wrightvigar.co.uk/services/crypto/) on the tax treatment.
{% endhint %}

It is possible the acquisition cost of the original Token A will be moved over to the new token, since the new Token A v2 has replaced the original Token A.