CGT on non-UK assets

[neillp]

I have a question about how a capital gain is calculated on a foreign asset. My simplified example is a follows:

A Swiss asset is purchase for CHF 1 million. This is entirely financed via a loan in CHF, for CHF 1 million. The FX rate is 2 CHF: 1 GBP.

The asset is subsequently sold, for CHF 1 million. The loan is repaid. The FX rate has moved between purchase and sale, to 1 CHF: 1 GBP.

The actual gain on the investment is zero. What is the gain for UK CGT purposes?

[King_Maker]

For CGT purposes, you need to calculate the Gain/Loss in £GB - so there is a Gain of £500,000.

[neillp]

Does that not seem very strange when there is no actual gain? Do you agree there is no actual gain?

[King_Maker]

Yes, there is no gain on the property in Swiss Franc terms.

But there is a ForEx gain in £GB terms. As UK taxes are Sterling based, this can give rise to this type of scenario.

[neillp]

There would be a FX gain, had the asset been financed in GBP and a spot FX trade carried out to convert the GBP loan into CHF. However in this case there wasn't, so there was no gain at all. Surely tax should be based on the GBP equivalent of the actual gain.

[King_Maker]

Unfortunately, the Courts and HMRC do not agree with your analysis.

Loans do not form part of the CGT calculation for individuals.

[neillp]

Do you agree the actual gain is zero? There is no actual profit in CHF or GBP?

[King_Maker]

It is not me that you need to convince but HMRC.

[neillp]

Thank you. I'm not trying to convince you, I'm merely asking what you think is the actual outcome, aside from the approach of HMRC.

[section 44]

You might consider there to be no gain. There is a gain for UK capital gains tax purposes.